DILEMMAS OF ISLAMIC ECONOMICS

Final Draft DILEMMAS OF ISLAMIC ECONOMICS1 Muhammad Akram Khan2 Delivered as Keynote address on 8 April 2018 at Islamic Economic Workshop 6 organized by IKAM, Istanbul, Turkey [Last updated 23 May 2019] Abstract Islamic economics is not a social science yet. It is a work in progress. Islamic economists differ on methodology for developing Islamic economic thought into a social science. They face several dilemmas surrounding religion, Islamic law, conventional economics, contents of Islamic economics, current practice of Islamic finance and zakah3, etc. Until fog clears around these dilemmas the objective of developing Islamic economics as a social science will remain unaccomplished. The paper discusses 11 dilemmas and suggests possible way forward. It aims at providing a platform for discussing and developing the Islamic economic thought into a social science.

Key words: Islamic economic teachings; religion and economics; nature of Islamic economics; riba; zakah; poverty.

JEL Classification Code: A 13, B 41, I 30, P19, Z 12

Introduction The roots of Islamic economic thought are in texts of the Qur’an and various compilations of the hadith4 works. Besides, we find documents from Muslim scholars since seventh century dealing with various aspects of economics and finance from Islamic perspective. In 20th century various movements for political independence and revival of Muslim faith started in lands which are now members of the Organization of Islamic Cooperation. Although we do not find a direct mention of the term ‘Islamic economics’ in these writings, yet we come across advocacy for ‘Islamic economic system’ as parallel to capitalism and socialism. The watershed came in 1976 when King Abdelaziz University Jeddah organized First International Conference on Islamic Economics. A few hundred Muslim scholars attended the Conference and recommended, inter alia, developing Islamic economics as a social science. By the beginning of 2018, during the last four decades, a 1

I acknowledge with thanks comments by Professors M.I. Molla, Akhmad Akbar Susamto on an earlier draft of this paper. I benefitted from these comments. However, remaining shortcomings are entirely my own.

2 makram1000@gmail.com 3 An obligatory levy on the income and wealth of the rich for spending on the poor and social welfare.

4 Written record of the sayings, actions and approvals of Prophet Muhammad (peace be upon him).

lot of progress has taken place in publishing literature, organizing conferences and establishing academic programs on Islamic economics and finance across the globe. We have documented the progress made elsewhere (Khan, M. Akram 2017). Suffice to say, despite a sizeable literature, the global community of economists have not yet recognized Islamic economics as a social science. Some Islamic economist have also expressed reservations about quality of the research work. For example, Arshad (2016, 106) after reviewing contents of 25 journals on Islamic economics and finance on nine-point criteria, concludes that ‘there is a concern regarding limited quantity and quality of globally reputable publication avenues in the discipline of Islamic economics.’ Beside the work on the academic forum, momentum of this movement has led to emergence of several hundred Islamic financial institutions, managing over 3 trillion dollars across the globe (WB and IDBG 2016, 57). A robust regulatory framework consisting of institutions such as Accounting and Auditing Organization of Islamic Financial Institutions and Islamic Financial Services Board is also active in the field.

Despite all the good work done so far, the original objective of developing Islamic economics as a social science has not yet been achieved (see e.g., Alatas 2006). Not only that, Islamic economists have not taken even first steps toward developing a social science based on the Islamic economic teachings (Khan, M. Akram 2017). The primary feature of a social science is that from a set of hypotheses, it follows a systematic method for formulating theories, which purport to make predictions under specified conditions. The theories remain available for validation or falsification by other scholars. If certain theories cannot be refuted over a long period of time, they are accepted as ‘laws’ of the social science. The law of demand in conventional economics is one such example. In case of Islamic economics, most of the literature produced so far restates the Islamic economic teachings in economic jargon and does not have any theoretical content (see e.g., Weill 2014, 79, 83). Even if Islamic economists had tried to present some hypotheses, they would have faced the challenge of validation or falsification in absence of an economy where they could be tested.

Several Islamic economists and scholars have expressed dissatisfaction with the current state of Islamic economics (e.g., Mirakhor and Askari 2017; Hasan 2016). They concur with the abovementioned assertion that Islamic economics is yet not a social science. For example, Tahir (2017, 4), Mahomedy (2016-a, 7) and Nienhaus (2014, 578, 2013, 176) contend that Islamic economics has not developed a distinct paradigm, without which it cannot solve the economic problems of the world. Zaman (2012, 148) has summarized opinions of top ranking Islamic economists (e.g., Chapra 2000; Siddiqi 2008; Kahf5) and critics of Islamic economics (e.g., Behdad 1994; Kuran 1997)6 expressing dissatisfaction about the current state of Islamic economics. Due to absence of an alternative paradigm, Islamic economists have not added fresh insights to the 5 6

Citation not provided by Zaman.

Citation not provided by Zaman.

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understanding provided by conventional economics (Mirakhor and Askari 2017, 187). It is no comfort to the world that Islamic economics has ideal solutions. The world is interested in knowing practical solutions.

There have been several attempts to take stock of Islamic economics as a discipline. Al-Bashir and Belabes (2013, 290) have enumerated these efforts from 1986 to second decade of 20th century. Islamic economists find gaps between their aspirations and the ground reality. For example, most of them would like to see re-incarnation of bygone glory of the Islamic history and would not be content on mere theorizing for academic pleasure. Some of them think that Islamic economics means implementing Islamic economic teachings in real-life. Some believe that the Islamic economic teachings can help solve most, if not all, economic problems of the day, only if governments of Muslim countries cooperate. By their education and training in the Western institutions, they find conventional economics useful but like to develop their ‘own’ economics based on Islamic teachings. However, they find themselves unequal to this daunting task. Islamic economists are unable to wish away the charge of utopianism in absence of an actual Islamic economy in the world (e.g. Shinsuke 2012; Farooq 2011; Kuran 1995; Hosseini 1992). Besides, they are not sure of boundaries of the still unborn social science and are puzzled about methodology for developing this discipline. In brief, Islamic economists are standing on crossroads, not knowing which direction to follow and where and when to take a turn (e.g. Farooq 2013, 31).

The present paper summarizes the predicament of Islamic economists. It brings out various ambiguities, challenges, confusions and dilemmas of Islamic economics. While concluding discussion on each dilemma we have presented our thoughts on future course of action. The paper aims at stimulating discussion and does not claim to present a panacea for the challenges facing Islamic economics.

Dilemma 1 Faith-based social science: Going ahead in isolation or involving global academic community?

During the last three centuries, since times of Adam Smith, economics has evolved as a social science in a secular mold, severing all relations with religion, relying solely on rationality and empirical data (Mahomedy 2016-b, 18, 26; Mahomedy 2015, 203-204). The Enlightenment thinkers played a decisive role in divorcing religion from social sciences and declaring human beings independent of divine guidance (Mirakhor and Askari 2017, 6-9, 51-52; Chapra 2008, 2009, 4). In this perspective, a social science, such as Islamic economics, that is based on the religion of Islam has a limited appeal for non-Muslims (Nienhaus 2013, 193). Further, the Western world is overly sensitive toward anything Islamic because of Islamophobia over-played by the media. It has complicated the situation since most of the non-Muslims feel a threat from Islam even though they are not fully aware of what Islam offers to humanity or what the real face of Islam 3

is. In this context, Islamic economists face a dilemma: should they develop Islamic economics as a solo flight, or, taking comfort from recent revival of interest in religion, involve other economists in developing a faith-based social science?

Taking a solo flight means, Islamic economists would not benefit from potential contributions of other scholars. It would impair intellectual growth of the subject. Islamic economics would remain a stunted social science that revolves around Muslims and is cut off from rest of the world.

It would also restrict the message of Islam to Muslims only although Islam stands for betterment of the entire humanity. This approach would defeat the original purpose behind revelation of Islam – inviting whole of humanity to the message of Islam. It means this is not a viable option.

Islamic economists must involve wider academic community of scholars in their enterprise of developing Islamic economics as a social science. They should be proactive in seeking and providing cooperation to rest of the global academic community for ‘sake of the common weal’, as Siddiqi has quite aptly said (Siddiqi 2012, 6; 2011, 27). However, they would have to answer the basic question: how to make a faith-based social science palatable to the global academic community that is predominantly secular? How to persuade economists of the world that going back to religion, which they discarded centuries ago, would provide a better understanding of the social reality and help solve economic problems more effectively? Islamic economists have encountered this dilemma with several responses: RESPONSES: DILEMMA 1 First, there is a revival of interest in religion-based economics. The current indifference to religion-based social sciences is fading away. (e.g., Iyer (2015; Ewest 2015; Hungerman and Chen 2014; Welch and Mueller 2001; Innaccone 1998). In due course of time Islamic economics would also be recognized as a social science (Chapra 2008, 2009 19). Chapra (2014, 87) says that some economists now realize the mistake of divorcing economics from religion. Some schools in economics favor reverting back to inclusion of religious and moral values in economic analysis.

Jones and Petersen (2011, 1292-ff) discuss in detail the revival of interest in religion as witnessed by growing number of discussion forums and documents published by donors and NGOs on relationship of religion and development. They cite (pp.1295) examples of Swiss Agency for Development Co-operation conference, on ‘Religion and Spirituality: A Development Taboo?’

(2002) followed by a series of workshops with NGOs; Aalborg University and the University of Bergen workshop on ‘Religion, NGOs, Civil Society and the Aid System’ (2006); Orfalea Center for Global and International Studies at the University of California workshop on ‘International NGOs and Religion’ (2008); Danish Institute for International Studies seminar series on ‘Religion and Development’ (2009). They mention Katherine Marshall, a senior advisor to the World Bank and editor of several anthologies on religion and development, as a key player in the World Faiths Development Dialogue (WFDD). They also report about dramatic increase in number of faithbased organizations. For example, some of the largest development NGOs, such as World Vision, 4

Aga Khan Foundation, Christian Aid, Caritas, Catholic Relief Services are faith-based, besides numerous religious organizations that are busy in social welfare work. They mention several initiatives by donors for funding projects relating to religion and development. For example, in 2005, the Department for International Development (DFID, UK) issued a policy brief on growing interest in development and the role of faith; in 2006, DFID funded a £3.5 million five-year research program, ‘Religions and Development’, implemented by University of Birmingham. The UK government funded work on religion and development as part of its £3.8 million NonGovernmental Action Program (2004–09); in 2007, five NGOs in the Netherlands, established the Knowledge Forum for Religion and Development Policy; the Swedish International Development Agency has hosted several workshops on the role of religion in development. Thus, the Islamic economists hope that the hostility to religion is fading away. This hope is reinforced by Nienhaus (2013, 177) who says that ‘Western economic orders are far less anti-religious than many external critics assume’, which is evidenced by existence of Christian economics that has many similarities with Islamic economics.

The comfort drawn from the revival of interest in religion is at best a false dawn. The focus of Islamic economics is that revelation is a source of knowledge and it brings forth such insights which can help solve the economic problems of humanity more effectively than solutions found through mere reason and empirical evidence. The recent upsurge in studies relating to religion and economics focus on entirely different subjects as compared to the focus of Islamic economics. The studies on relationship of religion and economics focus on following areas: (a) How can we use religion as an instrument in the work of NGOs engaged in poverty eradication, microfinance, heath, education and water-supply schemes, etc.? (b) How does the work of faith-based organizations impact life of the people in areas where these organizations operate? [Offutt et el 2016). (c) What is the effect of religious practices on the market and economy? For example, how does expenditure on zakah, hajj7 and social services impact the market? (d) What is the position of religion on various issues? For example, what does religion say about population control or inflation or labor rights? (e) What is the history of relationship between religion and economics? It focuses on ‘the different ways that religious belief had at one time been entwined with economic reasoning and how that relationship had later become severed’.

(Bateman 2011, 391).

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Pilgrimage to Makkah, obligatory on people with means.

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As compared to these, Islamic economics purports to present economic theory that is derived from the divine sources. It aims to present injunctions in the divine sources as hypotheses which can be tested for validation. In this perspective, the recent surge in studies on relationship of religion and economics should be of little comfort to Islamic economists.

Second, economics also upholds several ethical values even though it claims to be value-free.

In support of the above statement, Islamic economists bring evidence from economists who argue that economics is not value-neutral (e.g., Mahyudi and Aziz 2017, 227-228; Hasan 2016, 15; Roden 2014, 61; Putnam 2012; and Stiglitz 2010). This strand of argument draws comfort from the fact that a value-based economics, such as Islamic economics, would also be acceptable to conventional economists (Haneef 2005, 10-11). However, there is no evidence that the global community of economists would like to consider Islamic economics as a valuable addition to the existing knowledge.

Third, the global community of economists now realize that a spiritual dimension would salvage capitalism from complete destruction. Since capitalism is suffering from several insoluble problems, economists have started realizing that a spiritual and ethical dimension must be added to capitalism to salvage it from complete destruction (e.g. Siddiqi 2012, 5-6; Mirakhor and Askari 2017, 93 quote Samuel Rima (2013); Lee (2012, 2) quotes Zohar and Marshall (2004).

Mirakhor and Askari (2017) have made a formidable case about inadequacy of contemporary capitalism. They quote opinions of several thinkers who predict quick downfall of capitalism until it is supported by religious and spiritual scaffoldings.

The main plank of the argument is that present-day capitalism is experiencing a spiritual and ethical void and Islam has a strong basis for filling it. That takes them to Islamic economic teachings, which in pristine form, are undoubtedly unmatched by any other ideology. This stream of argument is quite pleasing to Muslims since they can quickly conclude that the gap in capitalism can be adequately filled by Islam. However, the question remains: how can they transform the Islamic teachings into a social science to be called ‘Islamic economics’? After all, they are finding fault with economics, which is a social science and it must be replaced or supplemented by another social science and not be religious teachings. A social science explains the ground reality. To be persuasive, Islamic economics should provide an explanation that is superior to conventional economics. Presenting Islamic economic teachings as a superior set of rules and norms does not face the challenge adequately. Until Islamic teachings are transformed into a social science, Islamic economists cannot jump to the conclusion that the gaps in conventional economics can be filled by Islamic economics. Short of that, all attempts in presenting Islamic economic teachings in the name of ‘Islamic economics’ would remain unpersuasive.

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Fourth, Islamic economists should promote universally shared values such as justice, benevolence, and cooperation (Siddiqi 2011, 29). They should forge faith-based alliances across the globe for saving resources, protecting environment, alleviating poverty, feeding the hungry, educating everyone, caring for the sick, and overseeing the greedy corporations. (Siddiqi 2012, 5-6). It is a plausible approach. However, it requires more of political and diplomatic work than pure academic work of developing a social science from Islamic teachings.

Thinkers around the globe are feeling need for supplementing the animal spirit of market capitalism with a spiritual dimension. Cut-throat competition among business firms has led to stark acquisitiveness and greed, which promote corruption, fraud and imbalanced patterns in production, consumption and growth. Similarly, there is a lot advocacy for socially responsible investment, ethical banking, green industries, and morality in commercial dealings. Despite that economists are hesitant to accept guidance from revelation. At the most, they concede some need for moral values and ethics such as trust, cooperation, philanthropy and altruism in the market place. They are still wondering how to inculcate these values among people. The educational system could provide a good basis (Dawkins 1976). However, the question of sustaining the moral attitude against temptation of materialism in absence of strong faith in the Omnipresent God and the Day of Judgement remains unanswered. It means though the economists realize need for a moral and spiritual basis for behavior in market, mechanism for ingraining these values in psyches of the people, enabling them to withstand materialistic temptations, is still absent. That defines the challenge for Islamic economists. How can they make a formidable case for legitimacy of Islamic economics? In sum, although the economists realize need for a moral and spiritual basis for behavior in market, the question remains: will they be willing to pay attention to a social science that is based on religion that is a way of life and not a collection of these few moral values?

SUMMING UP: DILEMMA 1 Economics has evolved into a discipline in such a manner that it has distanced from religion and other social sciences like psychology, sociology, anthropology, law and ethics. Memories of the Church punishing scientists like Galileo and Copernicus for their work based on empirical, inductive and rational grounds is still brightly lit in minds of the academia. It would be an arduous task to persuade the wider world community of economists to accept Islamic economics as a social science. However, there is no room for despondency. ‘The fundamental rule of scientific combat’, as Stigler (1982, 11) has aptly said is, ‘it takes a theory to beat a theory.’ Islamic economics must present its postulates in the form of theories which can be tested for validation or falsification. It would help them defeat skepticism about Islamic economics and its utility. It would be appropriate, for Islamic economists to present their thought on basis of rationality and empirical evidence – the two bases on which the entire knowledge of social sciences have 7

developed in this age. They should avoid presenting their position on the authority of religion or dogma.

The above approach has been adopted by the Qur’an itself for presenting its message. The Qur’an invites people to observe and reflect on reality of the universe. While referring to economic activity and material endowments, the Qur’an says that the people who use reason would be able to understand it better. There are several verses of the Qur’an that refer to this subject (e.g.

2:164, 3:2-4, 10:67, 14:32-33, 16:12, 27:86, 30:24, 40:61, 45:5, etc.). For sake of explanation we present Q. 45:5 which says as follows: And in the succession of night and day, and in the means of sustenance which God sends down from the skies, giving life to the earth after it has been lifeless, and in the change of the winds: [in all this] there are messages for people who use their reason.

The succession of day and night, changes in winds, and descending of rainfall are sources of life and economic activity. God says that those who use reason can understand these phenomena. If Islamic explanation of the economic reality is presented in rational terms, it would persuade those who rely on rationality. Historically, Muslim scholars have used rational reasoning as vehicle of their presentations (Mahomedy 2016, 30). Since economics is based on rational thinking, explanation of an economic phenomena in rational terms would make sense to economists and it would be difficult for them to turn a blind eye to it. The unfortunate part is that most of the literature on Islamic economics is presented on the authority of religion, thus creating an environment of dismissal and rejection for economists. The world scholarship has matured to a level where it is too humble to ignore any substantial idea that helps it understand the social reality better. The challenge is not in getting acceptance of the world community. The challenge is in transforming the Islamic economic teachings into the format of a social science with readiness to improve in the same manner as other social sciences do. Recognition will follow.

Dilemma 2 Advocacy for Islamic economics: Building a case on short-comings of conventional economics or on potential contribution of Islamic economics?

Most of the serious students of Islamic economics, sometime in their moments of introspection, come across a basic question: Why should we develop another social science while (conventional) economics exists? Is it because of some weaknesses in conventional economics or some inherent strengths of Islamic economics? Islamic economists have reflected on this issue.

Some of their responses are as follows: RESPONSES: DILEMMA 2

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First, the dominant economic paradigm is deficient. Siddiqi (2004) and Chapra (2014) have pointed out several shortcomings of conventional economics based on which, presumably, they would support Islamic economics. For example, Siddiqi (2004, 9-10), points out following shortcoming of the dominant economic paradigm: (a) It focuses on individual and ignores role of family and community as independent variables. (b) It assumes self-interest as prime motivation. (c) It takes maximization as norm.

Despite enormous material progress under capitalism, several problems such as extreme inequalities, environmental degradation, increase in poverty and hegemony of a superpower, etc. persist. Siddiqi argues that the above mentioned three shortcomings the dominant economic paradigm do not fit squarely with the Islamic paradigm. We need an alternative paradigm where: (a) individual is considered as member of a society. (b) caring for others is the norm. (c) maximization is replaced by balancing for interests of society, community and economy8.

These modifications, he thinks, are closer to reality and in harmony with the Islamic way of living.

Islamic economics can accommodate these changes in the dominant paradigm. Assuming Siddiqi’s criticism of the prevalent economic paradigm is realistic, it is not clear how it justifies creation of a new social science based on Islamic teachings? What if a similar argument is built by people of other faiths like Jews, Christians and Buddhists or even secularists9? Most of the criticism by Siddiqi on the dominant paradigm is based on contemporary thinking by secular economists. It does not immediately suggest that we should have Islamic economics to replace conventional economics. It only implies that the dominant economic paradigm is deficient and needs to be modified. Siddiqi’s argument is based on a negative assessment of the existing economic paradigm. It is not possible to deny the role of family or community in an individual’s life nor can one refute the fact that self-interest is not the only motivator of human behavior. But should family or community be legitimate part of economics? Study of a person’s behavior in the

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Bateman (2011, 408) also makes a persuasive case for expanding the scope of utilitarian analysis by integrating moral and social variables in the material variables.

9 For example, Moisseron and Teulon (2014, 136) write: “Many authors try to design new paradigms. For example; rent-capitalism, or cognitive-capitalism, post-fordist capitalism. Other authors insist on the need for an alternative model…About the problem of sustainable development, climatic change, ethical finance etc., many initiatives, forums, NGO’s have been launched. There are thousands of discussions on new initiatives…Most of the new forums on global governance, climatic change or needs for new ethics in capitalism, think that Christianity or Jewish traditions have something to say about these topics”. Also see: Balogh (1982); Stiglitz (2009)

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domain of family or community is now generally considered as part of sociology and not economics.

Similarly, altruistic behavior, despite being a reality, is displayed not in the market but in non-business environment. Market is a place for cooperation. There cannot be any deals in the market in absence of cooperation. However, while making deals all economic agents protect and promote self-interest. It is difficult to find examples of individuals or societies where people behave altruistically in the market place (Soldatos 2015, 5). There is no denying the role for philanthropy and cooperation. However, economics studies human behavior in market and not in family. That is the domain of other social sciences.

Economics has gradually shed off these influences since the days of Tocqueville and Mill in the mid-nineteenth centuries10. Arguing in 21st century to go back and include these aspects of human behavior in economics would be making a losing case to begin with.

The moot point is whether the study of these areas of human behavior should be included in economics? If we try to do that we shall be in the business of merging sociology with economics once again, although they were segregated about a century ago. We shall not be able to find many adherents to our ideas.

Siddiqi’s third point about maximization of utility is also unpersuasive. It depends how do we define ‘utility’. It is possible that a person, acting solely in self-interest, is also motivated by various factors other than material gains only. He or she could be motivated by hosts of other factors such as family welfare, fashion, climate, social approval, religious constraints, reward in the hereafter, etc. Whatever the factors, the person does mental calculation of the utility that he or she would get from an economic decision. Siddiqi criticizes conventional economic paradigm as it restricts the analysis to utility maximization. By that he assumes that individuals maximize material gain only. However, conceiving utility in a broader sense would include in it non-material gains as well (Rieger (2013, 34). In practical life, we cannot find a person who, while taking an economic decision, agrees to forego his or her utility (in whichever manner it is defined) in favor of the utility of the other party, merely on altruistic grounds. It could be possible only in a utopia. Siddiqi’s third objection on conventional economic paradigm is also unconvincing.

If we take a utopian example and assume that majority of conventional economists in the world accept Siddiqi’s position and agree to revise the existing paradigm, it would only make Siddiqi and his followers happy. It would still not open gates of economics to divine

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Bateman (2011, 401) elaborates in detail the thought process of Tocqueville and Mill during 1830s and 1840s.

Marshall’s ideas (end of 19th century) were a complete drift away from religion, segregating economics from the study of religion. Islamic economics at present is a statement of economic principles of Islam. It is, in fact, ‘religious economics’. From this point on we need to transform this thought into a social science, creating a ‘religion-based’ social science from ‘religious economics’.

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guidance of the Qur’an. Until we integrate knowledge derived from the Qur’an into existing knowledge of economics, we shall not be able to create Islamic economics as a social science. There is no logical reason to assume that with the acceptance of Siddiqi’s criticism on the existing economic paradigm, economists of the world will look up to the Qur’an for guidance. Therefore, the rationale for creating Islamic economics as a social science must be based on positive reasoning.

Second, Islamic economics studies voluntary sector, besides market and government. Some economists (e.g. Siddiqi, 2012) have justified Islamic economics as it studies a third sector, where people cooperate on voluntary basis for no material gains. The third sector, according to him, is a significant feature of the Islamic economy only. It reflects the Islamic behavior of cooperation and care for others. Examples are zakah and awqaf, etc.

There is no doubt that the voluntary sector works for welfare of the people on altruistic basis.

However, organizations in zakah and awqaf work also operate under self-interest. If, for example, an organization collects funds for providing Hajj services (e.g., Tabung Haji, Malaysia), there is no example that such an organization would finance pilgrimage for someone even if the person has not made a deposit with them. Of course, grants from zakah are free. But that is the distribution part of their work. In other areas they also protect self-interest. For example, when a zakah organization enters into a procurement contract with a transporter, both sides are motivated by self-interest. They do not deal on altruistic basis. Another example is the practice of Islamic financial institutions. Moghul (2017, 49) refers to a study conducted about corporate governance of Islamic financial institutions of Malaysia11. The study concludes that the Islamic financial institutions follow the capitalist model and protect interests shareholders and not interests of other stakeholders such as employees, government, poor people in the society, etc. We can safely say that it is in this sense all economies operate and have been operating throughout human history. Arguing that Islamic economy has a third sector which is driven not be selfishness but by altruism is not rigorous enough12.

Third, conventional economics studies the behavior of homo economicus. Some Islamic economists have argued that the behavior of this typical human being is a source of repeated financial crises in the capitalist system (e.g., Fernández 2012, 305-306). In this perspective, Islamic economists have chiseled out the character of homo Islamicus, as a parallel to homo

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[As in original]: Nor Azizah Zainal Abidin and Halima Nasiba Ahmad. 2007. Corporate governance reforms in Malaysia: The key leading players perspective. Journal of Corporate Governance 15 (5):737-778.

12 Sairalli in ISRA, Thomson Reuter and IRTI Report (2018, 20) testifies to the fact that the Islamic financial institutions ‘neglected other aspects of CSR such as principles of equality, inclusion and workplace-related CSR activities….” In general, CSR was practiced as a peripheral activity by the IFIs (e.g. related to donations and qard hasan) as opposed to being an integral, well thought-out and deliberate policy decision of management.

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economicus13. The homo Islamicus internalizes the best ethical qualities of a Muslim. The conventional economic paradigm cannot accommodate homo Islamicus (Zaman 2017, 221; Jarhi 2013, 9). Thus, a new social science that focuses on behavior of the homo Islamicus is required.

Trying to conceive the homo Islamicus as primary economic agent seems to have more of emotional overtones than serious thinking. Even some Islamic economists do not see the concept as reasonable (e.g., Mahyudi and Aziz 2017, 235; Mahyudi 2016, 236-239; Mahomedy 2106, 25; Mahomedy 2016-b, 26-30; Soldatos 2015, 5; Barom 2013; Siddiqi 2011, 27; Farooq 2011, 55-ff ; Azhar 2010, 9; Asutay 2007-a; Cokgezen, nd., 1). They think that the assumption that Muslims are different from other human beings is fundamentally wrong and not testified by reality.

Moreover, this approach restricts scope and boundaries of Islamic economics to Muslims only which is against the very message of the Qur’an which was revealed for whole of humanity not for Muslims only. It is interesting to note that most of the early jurists who developed the grand body of Islamic jurisprudence did not assume that the economic agents are homo Islamicus or ideal Muslims practicing Islam in letter and spirt, as most of the Muslim economists try to assume in their presentations. Instead, they assumed that the market agents were not homo Islamicus, creating juridical issues to be resolved by the jurists (El-Sheikh 2008, 126).

Khan, M. Fahim (2013, 227) adds another dimension to character of the homo Islamicus. He says that the Islamic economic man would also be distinct from homo economicus as the former behaves by using rushd (sound-mindedness). This is an excellent example of romanticizing the concept of Islamic economic man. He does not tell how do people act in all civilized societies?

Don’t they use their minds in a sound manner? What is the evidence they do not? In fact, rationality is nothing but sound-mindedness. Fahim khan needs to show any society on the globe at present or in historical annals where people, in general, did not act on basis of soundmindedness. If that is true for the whole of humanity and for all times, how do we make a difference by highlighting it in homo Islamicus? He thinks the distinctive feature of rushd is that the Islamic economic man pursues social interest as part of his private interest. He does not say where this type of person is found on earth and where he had lived earlier in the human history.

All economic transactions take place in spirit of cooperation but everyone in the deal tries to protect his or her interest. It is difficult to find examples of economic deals where people in general pursue the interest of others and give it priority over their personal interest. Saying that the Islamic man takes care of interests of the have-nots makes him distinct from homo economicus is misplacing the whole issue.

Fourth, in many parts of the world, religion is still a powerful force and influences behavior of economic agents. Therefore, divorcing religion from economics is unrealistic. Islamic economics 13

It is interesting to note that instead of pointing out the utopian nature of homo economicus, Islamic economists set out to carve out a similar character for themselves with an Islamic tinge. ( For inadequacy of the concept of homo economicus, see, e.g., Annet, 2018.)

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studies human behavior in an inclusive fashion and is more realistic than conventional economics.

It is a weak argument. If people behave in a religious manner, conventional economics studies their behavior as it is. It does not require founding of another social science in the name of Islamic economics. Economics studies behavior of the people as it is whether it is influenced by religion or not. Some Islamic economists have used conventional economics tools of analysis by substituting ‘Islamic’ assumptions. (See, e.g. Yasin and Khan 2016). By doing so, they have confirmed that conventional economics can be used as a framework for integrating Islamic economic teachings. Need for a separate discipline in the name of Islamic economics becomes less obvious. Therefore, it can be argued, to the extent we can integrate Islamic assumptions in conventional economic analysis we need not create a new social science in the name of Islamic economics.

Fifth, bringing ethics into economics will take it back to its original track. Conventional economics was originally based on ethics derived from religion (Chapra 2010). The most notable champion of ethics in economics was no one else than the father of modern economics, Adam Smith. Subsequently, neo-classical economists moved away from religion and gave it a secular twist (Sen 2009, 18; and 1991, 49-50; Baker 2005, 319). If we turn back, so the argument goes, and integrate the religious ethics in economics, we shall be only bringing economics back to its original track. There is a vast spectrum of views that is sympathetic to inclusion of moral values (but not religious percepts) in economic analysis (e.g., Lagarde 2015; StĂźckelberger 2012, 454; Lee 2012, 12; Sen 2009, 187; Haneef 2005, 11-12). Chapra (2008, 2009, 19; 2014, 87) mentions Grant Economics, Humanistic Economics, Social Economics, and Institutional Economics which advocate for inclusion of ethical values and role of various institutions in economic analysis.

However, Chapra argues, there is no mechanism in conventional economics to ensure that human beings adhere to ethical values in everyday behavior. As compared to this, Islamic economics brings in concepts of faith in the Unity of God and the Day of Judgement. These concepts provide a robust mechanism for getting compliance with ethical values. A social science based on the worldview of Islam that aims at transforming homo economicus to homo Islamicus would be more realistic and create environment for solving economic problems that mankind is facing.

We can notice a visible revival of interest in ethics and morality among conventional economists (Lagarde 2014; Murninghan 2012, 192; Chapra 2010). That is a welcome change in otherwise secular and materialistic outlook of the economic profession in general. However, there is still a significant resistance in accepting religion as a legitimate source of inspiration, insight or guidance. The reason could be reminiscences of anti-scientific stance of Christianity during the Middle Ages. Moreover, it is true that we find support for ethics and morality in writings of Adam Smith and other classical economists. It is also true that neoclassical economics later moved away 13

from religion, morality and ethics and became a positive social science. However, arguing now to turnback the wheel of knowledge development and take it back to 17th or 18th century would be an unimaginative endeavor. It would be difficult to turn back the progress of knowledge from its present path that it is treading for more than two centuries now. There is no doubt that some contemporary economists, particularly behavioral economists, are arguing for incorporating ethics and morality in economic analysis, but that does not mean they are willing to accept Islamic economics as a social science. Islamic economists should find more persuasive reasons for justifying their subject as a social science.

Sixth, Islamic economics can solve most of the economic problems of the present day. In a recent book, two top Islamic economists, Mirakhor and Askari (2017, 188-206) have argued that a proper implementation of Islamic economic system can solve most of the problems. For example, they say, property rights provide basis for distribution and redistribution of income and wealth leading to solution of unemployment and poverty; contract enforcement rules ensure there are no informational problems and transaction costs are minimal; market rules regulate monopoly and economic power; rules of governance ensure political power is not used for economic gains.

Islamic economic system will lead to a stable economy with justice embedded in the entire economic management. [It is a crude and oversimplified summary of their excellent presentation on this point.]

According to Mirakhor and Askari (2017, 182-ff) if we can create a society where most of the people follow rules prescribed by the Creator, we shall be able to solve the problems of poverty, unemployment, informational skewness, transaction costs, abuse of monopoly and bad governance. That provides the list of objectives which, if the Islamic economic system is implemented, will be achieved. However, that is approximately the agenda of conventional economics. Economists of the world are trying to find solutions for these problems. Once we tell them that Islamic economics aims at solving these problems, they would not be quite excited to buy the idea of a religion-based economics, the fulfilment of which is highly hypothetical. Trying to create a social science which aims to achieve the same thing which economics is already trying, would not persuade the economists to consider as sufficient justification for creating a new social science.

SUMMING UP: DILEMMA 2 Islamic economics has not been recognized as a social science. Primary reason for this is the way it has been presented. It is not in a format familiar to social scientists. At present, it consists of Islamic economic teachings only. An appropriate course of action would be to formulate hypotheses based on divine knowledge in a format which can be tested for confirmation or falsification. Once this is done and some theoretical content becomes available, conventional economists would pay attention to Islamic economics. It is unfortunate that Islamic economists 14

have not taken even the first step toward developing its theory in the generally accepted format but expect world body of social scientists to recognize it.

The arguments of the Islamic economists discussed above in support of Islamic economics as a social science are unpersuasive, to say the least. Using the framework of conventional economics for presenting ‘Islamic solutions’ to problems would be a self-defeating exercise. If the Islamic economists try to present another explanation of the social reality, they may not be quite successful. They have the disadvantage of a late starter. They cannot beat the existing pool of knowledge and prove their ideas as superior to the accumulated knowledge of economics. It would be problematic to determine if the Islamic explanation is in fact superior to the conventional explanation and how to measure this difference. Islamic economists would always be seeking confirmation and approval of conventional economists. It would be a wild-goose chase.

The case for Islamic economics should be argued on a different ground. The primary rationale for developing Islamic economics as a social science is that conventional economics is based on reason and empirical data. It does not recognize any super-sensory source of knowledge. Islamic economics uses revelation as a third source of knowledge. It integrates this knowledge to reason and empirical data and provides a broader canvas for understanding the social reality (Chapra 2008, 2009, 4). Justification for Islamic economics is that the revelation contains useful insights for understanding and solving the economic problem and conventional economics is unable to benefit from those insights The study of Islamic economics requires a deeper reflection on motivation of human behavior, which is influenced by a web of complex physical and metaphysical factors. Some of the knowledge received through revelation also deals with economic life of the people. Besides normative content, it contains positive statements relating to economic aspects of life which can help understand the social reality better. Many verses of the Qur’an discuss problems of prosperity and misery, income and wealth, corruption and destruction, philanthropy and social security, waste and moderation, environmental imbalance, and justice and exploitation. Most of these subjects are either not discussed in conventional economics or discussed from purely mundane point of view. Economics concentrates on physical factors only. But the Qur’an discusses these issues in a spiritual and ethical framework. It relates spiritual and ethical behavior with material prosperity and misery and happiness and unhappiness at micro and macro levels.

Islamic economics argues that the human behavior is influenced by spiritual and metaphysical factors as well, even in the market domain. That is the breakthrough which Islamic economics can bring in conventional economic thinking. Some of the factors that influence human behavior in spiritual sense are described in the divine sources of Islam. Thus, a whole vast area of relationship and impact of spiritual behavior and ethical values on material life of the people lies open before us. It would be appropriate that Islamic economics focuses on such areas. Islamic economists 15

should carve out this new field of enquiry, leaving conventional economics alone for studying its traditional subjects. Once Islamic economists re-define their focus of study, they shall be discussing something which conventional economics is not studying. It would open new fields of inquiry and would attract those from across the globe who are interested in human well-being.

The advent of behavioral economics points to the direction where Islamic economics can contribute to the understanding of economic problem. The behavioral economics focuses on micro-foundations of human behavior. Empirical data would attest to the fact that some human behavior is influenced by religious and spiritual factors also (Bateman 2011,408). Recognition of this fact provides intellectual space for nourishment of Islamic economic thought in the mold of a social science.

Dilemma 3 Relationship with conventional economics: Adopt, adapt or discard?

Islamic economists cannot wish away conventional economics, which has evolved over centuries and is predominantly taught and practiced around the globe. While trying to profess Islamic economics, they are not quite sure about the most appropriate response towards it. Should they adopt it as it is with some input of Islamic economic teachings wherever applicable to give it an Islamic flavor? Or should they adapt it to objectives of Islamic economics by modifying its some of its assumptions and approach but keep its paradigm intact? Or should they discard it altogether, considering it irrelevant to needs of Muslims and develop a new discipline which is based on Islamic worldview and unique Islamic assumptions about human behavior? How to avoid the criticism that Islamic economics is only a copy of conventional economics with added verses of the Qur’an and the hadith? For example, a typical presentation of objectives of Islamic economics is as follows: Achieve full employment, fight inflation, alleviate poverty, provide social security, enforce economic justice, protect environment, regulate markets, contain economic power, ensure efficiency in production, achieve economy in distribution, and distribute income equitably, etc.

These objectives are common with conventional economic analysis (Kahf 2003, 3). In what significant sense does Islamic economics contribute if it is trying to mimic conventional economics? Going beyond the objectives, Islamic economists have not presented any convincing solutions to vexing economic problems for achieving these objectives (Siddiqi, 2011, 25).

Question arises whether we need Islamic economics at all? The subject has been hotly debated and extensively discussed in the literature. A summary of main responses is as follows:

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RESPONSES: DILEMMA 3 First, Islamic economics can borrow from conventional economics but make it compatible with Islamic principles. Common ground between conventional economics and Islamic economics should be retained as it is. Some Islamic economists (e.g. Haneef 2015) support Islamization of economics, although they think it would be possible only when right type of human resource is available. Siddiqi (1994, 6) is quite explicit when he says that ‘craving for a de novo discipline of Islamic economics is ill-conceived as no such thing is possible.’ He proposes that Islamic economists should replace the worldview of conventional economics with the Islamic worldview but keep it universal. However, in his later writings (e.g., Siddiqi 2011, 18-ff), he opposes Islamization of knowledge and thinks that it is a political agenda and would not serve the cause of Islamic economics. Some Islamic economists think that anything not against the Islamic injunctions, explicitly or implicitly, would be acceptable (e.g., Furqani and Haneef 2012, 271; Chapra 1996; Mannan 1983). They take the example of consumer behavior in an assumed Islamic economy where consumers follow Islamic code of consumption and believe in infinite time horizon of the hereafter. By incorporating suitable changes in the market equilibrium model of conventional economics they derive an alternative equilibrium for Islamic economy (e.g., Yasin and Khan, 2016). The most comprehensive methodology to integrate Islamic economics and conventional economics is given by Zarqa in his path-breaking paper (2003, 34-ff). Briefly, he recommends that Islamic descriptive statements be added to descriptive statements of conventional economics. But normative statements of conventional economics should be replaced by the Islamic normative statements. The end-result would be Islamic economics.

The above response is quite popular with Islamic economists. It makes their job easy as well.

Conventional economics has well-developed theory with generally acceptable models. The job of Islamic economists is to replace some assumptions of conventional economics and work out, by applying the same methodology, an ‘Islamic theory’ or ‘Islamic model’. The problem with this approach is that the end-result cannot be tested for validity. There is no living example of an Islamic economy or Islamic economic agent as assumed in such models. Whatever the results, and however pleasing they may appear to Muslims, cannot persuade the wider academic community.

Second, some Islamic economists think that Islamic economics has become a sub-discipline of conventional economics. They are uneasy about excessive dependence on conventional economics (e.g., Gattoo and Gattoo 2017; Azid et el 2016, 596; Mahomedy 2015, 190; Furqani 2015-a, 15-19). They think that Islamic economics tends to confirm the neoclassical economics and does not offer new theory. It does not present an alternative to the dominant economic paradigm and has succumbed to its centripetal pull. It is caught in the web of the very system it set out to replace. Islamic economics, initially aiming at Islamization of economics, is busy in westernization of Islam. Instead of being a distinct social science, it has become a sub-discipline 17

of conventional economics. For future development, Islamic economics should develop its own foundations and body of knowledge by using its own epistemological framework (e.g., Haneef and Furqani 2011). Tahir (2017, 14) says that effort for Islamization of economics would be fruitless. Islamic economics should be reconstructed as an alternative to conventional economics.

Gattoo and Gattoo (2017, 194) recommend that Islamic economics should bring back history, sociology and philosophy into its fold.

The above reaction is mostly on procedures and methods of Islamic economics. It does not tell what is missing in terms of ultimate objective. Is it that by following the methodology of conventional economics, Islamic economics is not achieving anything? Or is it just a matter of Islamic ego and self-assertion? A clear and concise answer cannot be distilled from writings of these authors. Azhar (2010, 212-13), in a piercing analysis, questions soundness of the argument.

He contends that conventional economics has evolved over centuries by contribution of many sharp minds. It has now a well-developed analytical toolkit which helps in studying “what is” situations. As a matter of principle, even if Islamic economists want to argue about “what ought to be”, they would require the toolkit of conventional economics to understand the social reality as it is. Therefore, the attitude of Islamic economists to set aside conventional economics as something trivial is unpersuasive.

Third, an extreme opinion is that Islamic economists should study economic phenomenon as it is without adding the prefix ’Islamic’ with it. Monzer Kahf (2003, 2; 2010), one of the pioneers of Islamic economics, thinks that Islamic economists should follow Ibn Khaldun who studied the social reality as it was and never added the prefix ‘Islamic’ to his theories; nor did he contain himself to study of Muslims only. In another paper (Kahf, nd), he says that conventional economics studies capitalism and socialism. It can study Islamic economic system as well. In this perspective, Islamic economics is no more than application of economic theory to Islamic economic system (pp. 23). What we want to do is to study economic behavior of human beings, Muslims and non-Muslims alike, in the perspective of an Islamic economic system (pp.19). The objective is to study the “is situation” and to suggest the mechanism of arriving at “ought situation” (pp. 21-22) A deeper look in this response will show that Islamic economics is an effort to create the Islamic economic system (pp.21). Though the author chooses a more generic expression of “study of human behavior” (pp.14) and tries to convey the message that he wants to liberate Islamic economics from clutches of religiosity, yet he ends up arguing for creating an Islamic economic system. By his definition, he wants to suggest that everyone, Muslims and non-Muslims alike, can study this economics as it does not deal exclusively with any religion (pp.17). But this impression is nullified when he concludes his argument. He wants to create an Islamic economic system and the study of human behavior in that system would constitute Islamic economics, although it would be a sub-set of conventional economics and would use same tools of analysis.

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Fourth, another extreme view is to reject conventional economics outright. Zaman in his various writings (e.g. 2017, 2015, 2012, 2012-a, 1992 etc.) has propagated this idea. For example (2012, 149-150) he says: “The only solution to this problem is to reject conventional economic theories as well as methodology and start from the background assumptions furnished by Islam”. An oversimplified and crude summary of his argument (pp. 150-160) is as follows (written by the present writer): Conventional economics studies human behavior without referring to the historical context. As it has imitated mathematical bias of physics, its theories are admired more for mathematical elegance than for practical relevance. It is founded on material determinism. It does not accept any role for God and treats human beings as an input in production process. As consumers, human beings are driven by materialistic selfish motives. Human beings do not have a role for changing the fate and destiny of a nation [pp.153]. It claims to be a positive science, but this claim is false. Consumer behavior diverges from the economic models. Profit maximization models for business firms do not present a reality. Simple supply and demand models break down in labor markets.

Determination of prices through market equilibrium also does not hold empirically.

Islamic economics should focus on transforming individuals. It should have spiritual focus.

It should be concerned with moral training.

Let us assume, as an extreme hypothetical example, that the approach and methodology pleaded

by Zaman is valid, robust and practicable. The conclusion would be creating a social science that focuses on Muslims only. It would tantamount to restricting guidance of the Qur’an to Muslims.

That would defeat the primary Qur’anic claim that it is a guidance for whole of humanity. Any such approach that restricts audience of Islamic economics to Muslims only is also unjustified on another ground: why non-Muslims should not benefit from the divine guidance if it can benefit them? Why should Muslims restrict their message to themselves only?

THE QUESTION OF TOOLS OF ANALYSIS One of the related question is: should Islamic economics use tools of analysis developed by conventional economics? Or should it discard these tools and develop its own? There have been various responses as in case of acceptance or rejection of conventional economics discussed above.

Fifth, Islamic economics can use these tools. For example, Ahmed (2014, 107) thinks that ‘marginalist analytical tools are not incompatible with Islamic principles…’

Sixth, Islamic economics can use these tools after due examination. For example, Furqani (2015, 334) says that ‘all concepts of neoclassical economics should be scrutinized in the Islamic ethical framework and if they are accepted, justification is needed, and modification required to comport with Islamic framework; if they are not accepted, a replacement should be attempted.’

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The point of reference remains neoclassical economics. The direction of research is scrutiny of its concepts for accepting or rejecting what it has achieved so far. The question is: can this work be done in a fruitful manner? Who will finally decide what is acceptable and what is not? If we substitute some concepts of conventional economics, who will decide whether the new concepts are in line with Islam? It is a never-ending exercise with dubious outcomes that neglects basic teachings of the Qur’an and the hadith from where we must develop Islamic economics as a social science. By following the above advice, we get into an entirely different business: accept or reject the neoclassical economics. Why do we want to do this? Why not leave conventional economics as it is? Why not proceed from the Qur’an and the hadith and spell out principles, theories and laws from those sources?

The tools of analysis of conventional economics study, analyze and interpret the economic phenomena as they are. In one sense, these tools are simplistic when compared to complexity of real-life situation. While analyzing an economic phenomenon, economists assume that human behavior is rational and is influenced by material and physical factors only. The fact is that human behavior and its outcomes are neither always rational nor influenced by material factors only. It is influenced by non-material factors which could be metaphysical and spiritual. For example, when a consumer buys something, besides price, other factors such as fashion, customs, culture, religion, climate, social class, ethical views, spiritual urgings, etc. also influence her decision.

Islamic economics recognizes these factors. However, the challenge for Islamic economists is to measure impact of non-material, spiritual and moral factors on economic decisions over an extended period. Another example could be measuring impact of gratitude on one’s level of income and wealth. Such questions assume that human economic condition is influenced, at least partly, by ethical, spiritual or metaphysical factors as well. However, conventional economics is not geared to face and answer such questions. Economists do not have tools to study, measure and interpret the influence of non-material or spiritual factors on economic situations. Therefore, the very question whether Islamic economics should or could use the tools of analysis of conventional economics becomes superfluous. The responsibility for developing appropriate tools of analysis for measuring and interpreting impact of non-material and spiritual factors on economic conditions of human beings lies squarely on Islamic economists. Siddiqi (2004, 11-13) points out that core Islamic concepts such as waste (israf), senseless squandering of resources (tabdhir), moderation (i‘tidal), generosity (samaha), sincerity (naseeha), leniency (rifq) and benevolence (ihsan) etc. relating to microeconomic behavior have not received due attention of Islamic economists.

By its very nature, the study of impact of religious, ethical and spiritual practices make it obligatory that Islamic economics focus on micro-foundations of human behavior. Although behavioral economics, a new branch of economics, studies micro-foundations of human behavior yet it has not developed tools for studying impact of religious behavior on material conditions of 20

life. Fortunately, other sciences have developed some tools of analysis which can stimulate thinking and further research in Islamic economics. Khan, Mussarat Jabeen (2014) mentions how psychology is entering the field of measuring impact of religiosity on human behavior. She mentions several indices by Western psychologists which study the impact of religion on human behavior. But these indices are mostly in context of Christian and Jewish faiths. There is no scale for measuring impact of religiosity in context of Muslim faith. For filling this gap, she has herself developed Muslim Religiosity Scale, measuring the impact of internal religiosity and external religiosity separately on human behavior. This is an inspiring work which can stimulate thinking among Islamic economists for developing tools for measuring the impact of religion on material conditions of people. Besides, medical research also applies method of random controlled experimentation for studying human behavior and effect of various life styles and drugs on human health. Islamic economists can learn from such methods. Similarly, Beik and Arsyianti (2016) have developed a Spiritual Poverty Index in context of measuring impact of zakah on spiritual condition of zakah recipients. This is an encouraging effort and shows way forward to Islamic economists. Another example is development of personality measurement tool mentioned by Fuwad and Akbar (2016). It measures impact of spirituality on personality. Rehman and Askari (2010) introduced ‘Islamicity index’ for measuring adherence to Islam across countries. Zaheer and Rasool (2017, 28-38) have developed Maqasid al-Shari’ah index for Islamic banking institutions. In brief, Islamic economists can get help from other sciences such as psychology, sociology, medical sciences, etc. for developing tools of analysis relevant to their theoretical work.

SUMMING UP: DILEMMA 3 Islamic economists are not unanimous about their reaction toward conventional economics. The spectrum of responses ranges from outright rejection to modification of assumptions, replacement of worldview to retaining of conventional economics with focus on Islamic economic system. Conventional economics consists of knowledge accumulated over centuries.

As discussed while summing up Dilemma 2 above, one of the primary conclusions of this paper is that Islamic economists should study conventional economics as it is. If they want to contribute to it, they can do so in its given framework. Trying to do patch-work by modifying its assumptions or replacing its worldview would not be of much consequence. The global academic community would not accept change of assumptions or replacement of worldview because, in absence of a real-life Islamic economy, they would not be able to validate conclusions of the new Islamic model. Instead of trying to modify conventional economics, Islamic economists should focus on the subjects and areas which are not the focus of conventional economics. Doing so, would remove all conflict with conventional economics. A new discipline in the name of Islamic economics should be conceived that focuses on such subjects as relationship and impact of spiritual and ethical behavior on material conditions of man. For doing that, Islamic economics 21

would get guidance from its divine sources. However, the process of developing social science would follow the familiar method of theory development as is followed by conventional economics. We have elaborated it elsewhere (Khan 2014-a) and would not like to repeat here.

We do not agree with the opinion that a new science should not be developed or cannot be developed. We think the areas pointed out above have not been explored by Islamic economists.

Only if they had tried and failed to arrive at some reliable conclusions would we have agreed to such a depressing conclusion. At this stage, it seems to be a hasty conclusion. Islamic economists have not taken even the first step to relate moral and spiritual laws of Islam with material conditions of the people. They can do that now. It would help them develop a new social science to be called ‘Islamic economics’, without any conflict with conventional economics.

Dilemma 4 What is Islamic economics? Defining in terms of its elements? Or defining in terms of its functions?

What is Islamic economics? This is a natural question that occurs to everyone interested in the subject. Several authors have tried to define Islamic economics. There is yet no generally agreed definition (Hasan 2016, 13). Furqani (2018, 73) compiled a list of 21 definitions. Some more may have come up since then. We do not intend to examine these definitions. Our objective is to highlight the dilemma that Islamic economists face in defining the subject. For ease of analysis, we have divide the definitions in some crude categories. Perhaps, no definition with its specific wording would fit into any category. Each definition says more than what the category suggests.

While recognizing this limitation, the compulsion for categorizing ensues from the need to remain focused on our subject.

RESPONSES: DILEMMA 4 First, Islamic economics is study of economic behavior in Islamic perspective (e.g., Mirakhor and Askari 2017, 100; Tahir 2017, 7; Haneef 2005, 5; Naqvi 1994, 176; Metwally 1993, 1; Ahmad 1992, 19; Mannan 1987, 18; Choudhury 1986, 4; Arif 1985, 87). Some definitions in this set explicitly say that Islamic economics studies behavior of Muslims, others only imply this.

Second, Islamic economics studies economic problem of man in perspective of the Qur’an and the Sunnah (Tahir 2017, 7; Siddiqi 1992). By focusing on study of economic problem, Islamic economists have paid considerable attention to the question of scarcity of resources. We shall take up this question a little later in this section.

Third, Islamic economics studies Islamic economic system and tries to define basic axioms, values and institutions of the system (e.g. Aydin 2015, 57-ff; Attia 2007, 224; Kahf 2003,3; Zarqa 2003, 25-26, 31). A slightly modified version of this definition says Islamic economics is study of conventional economics from Islamic perspective. (e.g. Siddiqui, 2011, 141) 22

Fourth, Islamic economics is application of rules of Shari’ah for preventing injustice, managing material resources and meeting human needs (e.g., Mahyudi and Aziz 2017, 238; Asutay 2013, 56; Hasanuzzaman 1984, 51; al-Sadr 1983, vol. II, 6.). By implication, this set of definitions makes Islamic economics study of Muslims, by Muslims and for Muslims. These definitions are more of wishful thinking than expression of real focus of the literature. Islamic economists, have generally not addressed the economic problems of Muslim countries. They have been busy in clarifying and explaining the economic teachings of Islam in an ideal setting. Perhaps, the unsaid plea is that none of the Muslim countries have implemented Islamic economic system completely.

Fifth, another set of definitions adopts the definition of conventional economics with some modification. Islamic economics, in this set, studies unlimited human wants with scarce resources for achieving falah14(e.g. Furqani 2015-b, 14; Hasan 2015, 4; Hasan 2011, 21; Chapra 1996, 30; Khan 1984, 55). These definitions combine study of the economic problem with the objective of achieving falah. The study of falah introduces ambiguity in the definitions since there is no generally accepted definition of falah. There are no indicators to tell whether falah has been achieved or not or when shall we say that it is maximized. In absence of any such explanation the definitions are, at best, amalgams of conventional economics and Islamic perspective. It expresses the dilemma of those who are convinced by robustness of conventional economics but are also gripped by a desire to create an Islamic economy, even though it is not clear how this feat can be accomplished.

THE QUESTION OF ECONOMIC PROBLEM The generally accepted definition of conventional economics is the one presented by Robbins (1945, 16) as follows: “Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”

Based on this definition, it is now generally agreed that economics studies the economic problem relating to production, distribution and consumption arising out of multiple ends and scarce resources which have alternative uses. Islamic economists were led to the study of economic problem under similar assumptions as conventional economics does. That dragged them into discussion of scarcity or abundance of resources. While they could observe scarcity of resources around them, they came across some verses of the Qur’an which refer to adequacy of resources.

The discussion took a route which did not allow them to take a conclusive position about definition of Islamic economics. The question is: does Islamic economics study the economic

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Falah is a Qur’anic concept that relates to success, achievement and happiness both in this worldly life as well as in the hereafter. Muslim believers are expected to strive for achieving the falah. Islamic state should adopt policies which create enabling environment the falah. Thus, it becomes the objective of whole economic activity in a Muslim society.

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problem? If the answer is in the affirmative, then of necessity do we have to accept the basic premises that the economic problem arises merely from scarcity of resources? I think, Islamic economists imposed this compulsion upon themselves unnecessarily. Economic problem is caused, primarily, of course, from scarcity of resources. To that extent the position of Islamic economics and conventional economics have no divergence. Those who tried to argue that there is no scarcity of resources have committed the mistake of reading the Qur’an out of context (e.g.

Q.41:10, 54:49). Their point of view cannot withstand rational arguments and everyday observation by an ordinary person. Having said that, we should recognize that the economic problem is not caused merely by scarcity of resources although it could be the most common reason. It arises not by the scarcity of resources only but also by other factors such as stated below: 

Abundance of resources in ownership of an individual or organization can be a source of the economic problem. It can lead to waste, squandering of resources, extravagance, and environmental pollution (Chapra 2011). Cust and Mihalyi (2017) elaborate how resources and promise of discovery of natural resources like oil and gas can become a curse rather than a source of prosperity. It may also lead to greed with consequent impact in human behavior in different settings.



Injustice manifest by non-reciprocity, inequality, unfairness, lack of accountability and perpetuation of inborn inequalities of the weak through public policies creates economic problems for individuals and societies and is a source of economic problem but not necessarily related to scarcity of resources.



Economic problem can have an ethical and spiritual dimension. Despite material abundance one could be unhappy due to unethical behavior such as ingratitude, arrogance, envy, jealousy, greed, nonfulfillment of contracts, etc. Conventional economics does not consider spiritual and ethical behavior as a cause of the economic problem, although it can be a source of human happiness or unhappiness.



Economic problem can also arise from corruption (termed as fasad fil ard by the Qur’an), leading to destruction of material, physical, human resources and institutions and environmental pollution.



Government policies can also be source of economic problem leading to inflation, unemployment, regressive taxation, inequitable distribution of income and wealth, uneven development strategy, etc.



Economic problem also arises from asymmetry of information among economic agents. Examples are: opaque accountability framework in agent-principal relationship, insider trading and speculative behavior of stock exchange actors, 24

collusion among business firms, adverse selection of projects by the mudarib15 for seeking finance from banks, manipulation of accounts by banks and corporations to suppress distribution of dividends, over-valuation or under-valuation of assets for influencing sale and purchase prices, manipulation of accounts to avoid tax, etc.

These are just examples. Economic problem arises not merely by scarcity of resources but by other factors as well. In brief, Islamic economics studies economic problem, however, it is caused. If we adopt this meaning of economic problem, we shall also expand canvas of economics, without discarding any of its achievements.

Some Islamic economists (e.g. Fahim Khan 2013, 225) have labored hard to say that the real economic problem is ‘need fulfilment’ and not ‘want satisfaction’. Even if we assume that it is possible to define the term ‘need’ in a defensible manner, the above definition satisfies this criterion as well. Islamic economics would study the economic problem in whichever way we define it.

WHAT SHOULD BE THE SCOPE OF ISLAMIC ECONOMICS? We now come to a more fundamental question: what is the scope of Islamic economics? We think that the entire effort to develop Islamic economics on pattern of conventional economics is an unfruitful effort16. Conventional economics studies production, distribution and consumption of goods and services. It has a vast stock of knowledge created over centuries.

Thousands of intelligent people have contributed to it. Taking up those very subjects and trying to present alternative explanations on basis of the divine texts would be an arduous task. Islamic economists would not be able to find precise guidance for all issues from the primary Islamic sources. They would then turn to conventional economics for completing the picture. Thus, a sort of patch work would ensue. In fact, most of the attempts so far in producing text book material on Islamic economics are of this type (e.g., Yasin and Khan 2016). We think, Islamic economics, being true to its claim that it has its origin in the divine sources, should focus on those areas which are not subjects of conventional economics or which have not been studied deeply by conventional economists. For this purpose, following list of topics could be a first level Illustration of the idea, which can be refined and improved with further thinking. These subjects can form the table of contents of a text book on Islamic economics.

1. Worldview of Islam: Tawhid, Risala, Akhira; property rights 2. Theological roots of Islamic economics: Positive economic statement of the Qur’an and the hadith 3. Operation of the Invisible Hand of God 15

In Islamic commercial law of mudaraba, it refers to the working partner as against the other party which provides capital.

16 A similar view is expressed by Fahim Khan (2013, 232), although he does not explain it fully.

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4. Islamic theory of economic justice 5. Methodology of Islamic economics: Theory building from divine injunctions 6. Islamic theory of happiness and prosperous life (falah and hayat tayyeba) 7. Qur’anic theory of distribution of income and wealth (rizq) 8. Islamic theory of consumer behavior (israf and tabdhir, shuhh, bukhl,) 9. Islamic theory of economic balance (Antonym of fasad fil ard) 10. Islamic theory of markets: profit maximization along with social good (maslaha) 11. Islamic business ethics (cooperation, trust (tawakkul), sincerity (nasiha), honoring commitments, trust, etc.)

12. Islamic theory of riba 13. Islamic finance: scope and dimensions; current practice.

14. Islamic theory of philanthropy (infaq) 15. Islamic public finance: zakah and its economics; current practice 16. Waqf and its role in Islamic economy; current practice 17. Microfinance in Islamic economy; current practice; 18. Hisba and regulation of markets (application of: amr bil m’aruf wan ahi anil munkar) 19. Role of government: consultation (shura); role in economic development; current practice 20. And so on SUMMING UP: DILEMMA 4 Several scholars have tried to define Islamic economics. However, there is yet no generally accepted definition. The definition, to be generally acceptable, should meet the following criteria: a) It should aim at studying the economic problem. However, the definition and nature of economic problem need not be restricted to material problems arising out scarcity of resources. It should cover the entire canvas of socio-economic life including problems arising from the influence of unethical behavior on material life. b) Since it purports to derive its content from the divine source of Islam (i.e. the Qur’an and the hadith), the definition should integrate human understanding of these sources with rational study and empirical analysis. c) The definition should follow process of reflection and discussion and adopt the generally accepted methodology of other social sciences in which hypotheses are tested and validated on the criteria of verification or non-falsification. It should not make any claims merely based on religious authority. d) It should be a positive social science that studies the conditions as they are and not as they should be. Historically, social sciences have come out of the domain of normative thinking. Normative knowledge mostly is restricted to such areas as ethics, law and 26

religion. A science that claims or aims to be normative will not appeal to wider community of social scientists. e) It should be universally applicable and not limited to people of any specific religion, region, caste or creed. It should be for all human beings.

The above discussion has set stage for venturing into a new definition of Islamic economics. We presented the following definition earlier (Khan 2014) and reproduce it here for further consideration: Islamic economics is a social science that integrates human understanding of divine sources of knowledge into study of the economic problem.

The definition has certain implications: 

It clearly delineates Islamic economics from other Islamic disciplines such as theology, ethics, jurisprudence, law, history, etc. By making Islamic economics a social science, it agrees to accept and use methodology and tools of analysis of other social sciences17.



The definition does not link Islamic economics with Islamic economy or Islamic economic system which does not exist in real world. The whole question of establishing an Islamic economic system, which is more of a political agenda, is divorced from Islamic economics.



The definition does not consist of an inventory of Islamic economic teachings. Instead, it focuses on human understanding of these teachings. Thus, developing Islamic economics as a social science is a second step after the teachings have been documented. The human understanding of the teachings is subject to examination, verification and falsification.



The definition closes the debate about normative or positive character of Islamic economics. It clearly asserts that it is a study of the economic problem and thus a positive science like conventional economics. However, its findings may be used by policy makers for addressing various problems.

The definition takes away confusion in some existing definitions which mix-up the definition with objectives of Islamic economics. Trying to embed objectives of Islamic economics into definition overburdens the definition. It puts off non-Muslim social scientists that are not interested in any of these objectives but would like to broaden their understanding of the economic problem from a different perspective.





By using the phrase ‘divine sources of knowledge’ it keeps the window open for borrowing from earlier scriptures. It can attract attention of the wider knowledge community, which



17

There are Islamic economists (e.g. Zaman 2017, 2013) who detest the very notion of social science. The present paper does not address this question for remaining focused on its main subject.

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is unbiased about borrowing from any source of knowledge that can help enhance our understanding of the problems. 

As a social science, Islamic economics aims at studying the economic problem in whatever way it emerges. In other words, Islamic economics does study the economic problem but in its wider perspective. However, while doing so, it integrates human understanding of the divine sources into study of the problem. Islamic economics need not describe cause of the economic problem in its definition. It should simply say that it focuses on the economic problem by whatever manner it arises.

The other definitions that come closer to the above criteria are as follows: Islamic economics is an approach and process of interpreting and solving economic problems of human beings based on values, norms and laws and institutions found in and derived from the sources of Islam. [Haneef 2005, 5).

Or Islamic economics is a branch of knowledge that aims at analyzing, interpreting and resolving economic problems with reference to the methodology of Islam. (Iqbal and Lewis 2009, 13)

These definitions do not insist that there should be an Islamic economic system prior to having an Islamic economics nor do they say that the aim of Islamic economics is to create such a system.

They emphasize understanding and solution of the economic problems based on Islamic values, norms, laws and institutions. A further refinement of these definitions would be to say that Islamic economics integrates human understanding of the primary sources of Islam to the process of understanding and solving the economic problem.

Dilemma 5 Methodology of Islamic economics: Positive social science or the one that aims at transforming Muslim economies?

Conventional economics is a positive science that studies social reality as it is. Many Islamic economists have reflected on the nature and approach of Islamic economics, trying to answer the question: should it be a positive science or a normative one? They have responded to this question in different manners. Some responses are as follows: RESPONSES: DILEMMA 5 First, Islamic economics is normative. Roots of this response can be traced back to political movements of 19th and 20th centuries when several Muslim leaders raised slogan of reincarnating the bygone glory of Islam by rejuvenating its practice (Siddiqi 2008, 4). The slogan for practicing ‘Islamic economic teachings’, which later took the form of ‘developing Islamic economics’ had a 28

built-in bias for creating a normative social science. Many Islamic economists reject conventional economics mainly because it is positive and not normative. They think mere theorizing in the abstract is an academic luxury. Muslims should use Islamic economics for transforming the existing economies into ‘Islamic economies’. (e.g., Mahomedy 2016, 19; Hasan 2016, 15; Chapra 2014, 87 and 1996, 32; Furqani and Haneef 2012, 273; and Asutay 2007, 5). A slight variation of the above position is taken by Siddiqi (2007, 1) who says that normative dimension of Islamic economic teachings can be accommodated if Muslims distinguish between theory and policy.

There are several problems with this response: (a) Islamic economists have not so far defined sufficient and necessary conditions of an Islamic economy. We do not know when an economy would become ‘Islamic’ and what are the stages through which it will pass. Exceptions are, perhaps, Mirakhor and Askari (2017) and Azhar (2010) who have dealt with this subject. However, they, too, do not provide a list of measurable indicators of an Islamic economy. (See below our discussion on this question.) (b) There is no theoretical model for transforming the existing economies into Islamic economies. What are the transformation processes and stages? (c) There is no agreed methodology for developing a normative social science in the name of Islamic economics. How would Islamic economists convert the divine injunctions of the Qur’an and the hadith into a social science? (d) It is yet not clear how to handle the whole issue of testing theories of Islamic economics in absence of an Islamic economy; more so, when the prospects of its coming into being are also remote (Jarhi 2013,3)?18. (e) Islamic economists have not yet given serious thought to the possibility of developing a theory of Islamic economy if majority does not practice the Islamic principles. In that case, they could have all types of data available to examine and postulate. Can they proceed with the process of theorizing for Islamic economics from the negative side?

If not, why not? (f) Nienhaus (2010, 95) has rightly pointed out that whatever Islamic economic models have been presented so far are ‘mainly prescriptive and do not present theories with explanatory power concerning the behavior of actual Muslims’. What is the use of such modelling? How they can help in developing a social science?

Second, Islamic economics combines positive and normative aspects. A positive science studies ground reality and makes predictions about future outcomes. A normative science assumes about the ground reality and prescribes to change it. This approach says that Islamic economics 18

We do come across, however, such outlandish statements as from Mannan (1983, 49): “It is now abundantly clear that the presence of an actual economy (i.e., reality) where ideas could be tested against actual problems is not really needed for the formulation of a social and economic theory, the development of which may be needed to explain both the reality of the present and the perceived reality of the future.”

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deals with both aspects. However, it does not face the question: why should we develop a normative science when all prescriptive measures are available in the Islamic sources? Tahir (2017, 9-10) thinks the predictive power of theory in Islamic economics would be balanced by propriety of assumptions. However, he does not explain and illustrate how this would be done.

Furqani and Haneef (2012, 274), take up the challenge in greater detail. They argue that by integrating normative and positive dimensions, the methodology of Islamic economics would change. Theories of Islamic economics would be tested against three-fold criteria: Shari’ah; reason; and empirical evidence. Shari’ah would take care of the normative dimension. Reason and empirical evidence would focus on the positive dimension. The argument has several weaknesses: (a) Theories of Islamic economics are supposed to emanate from the Shari’ah rules.

Testing them against those very rules would be unnecessary. How could they ever be against or non-compliant with the Shari’ah? The catch in this argument is that the authors implicitly assume that Islamic economic theory would be derived from some sources external to the Shari’ah. If that is so, this work is being done by conventional economics. However, since Islamic economic theory is derived from the doctrinal sources, there is no point in examining its validity against criteria of the doctrinal truth. That leaves us with two criteria for testing theories: reason and empirical facts.

These criteria are used by conventional economics as well. How would Islamic economics make a difference? Secondly, suppose we overcome the first hurdle and find a theory compatible with the Shari’ah, how do we test it empirically? There is no Islamic economy where such theories can be tested. (b) The authors are confusing two functions: One, deriving sound principles and developing sound understanding of the divine texts. Second, formulating economic hypothesis from that understanding. The former task is not part of Islamic economics.

It is part of religion that specifies Islamic economic teachings. It should rest where it belongs to. After we have a consistent and valid understanding of the divine texts, next step is to develop economic hypotheses to be tested. The criteria for testing such hypotheses cannot be any other than reason and empirical evidence. If that is so, how does the methodology of Islamic economics differ from the methodology of conventional economics? (c) The authors further argue (pp.277) that normative and positive dimensions of theories would be unified in Islamic economics. The economic agents would internalize moral values of Islam. Therefore, actual behavior of economic agents would be according to normative vision of Islam. At that time, economic theory would be explaining the social reality as it is. Now, this is unnecessary laboring of a simple point. If, through education and training, the behavior of people changes, the economic theory would study the changed behavior. That is what is done in 30

conventional economics also. How is it peculiar to Islamic economics? The crux of the matter is that the economic theory would study ground reality. If the reality is transformed through education, the theory would also change. That is fair enough.

But, then, there is nothing Islamic about it. The process of transformation is not the subject of economics. It is part of theological preaching or education or sociology. It is not part of economics. We should not confuse the issues.

Third, a minority opinion is that Islamic economics is neither positive nor normative. Mannan (1983, 41) thinks that the primary sources of Islam have both normative and positive statements.

Islamic economists should go by those statements and any discussion about being positive or normative is superfluous. Obviously, he does not face the primary question: what is the objective of Islamic economics? Is it meant to transform the existing economies into Islamic economies or is to study the economic phenomena as it is?

Fourth, some Islamic economists (e.g. Azhar 2010, 212-13; Khan 2017) argue for developing Islamic economics as a positive social science. They think that study of conditions as they are, is the first step. The knowledge so acquired can be used for making appropriate policies based on Islamic worldview. This opinion seems to hold a great promise for developing Islamic economics as a social science. Instead of focusing on normative injunctions, Islamic economists should focus on positive statements relating to various economic issues found in the Qur’an and the hadith.

They should develop understanding of these statements in contemporary context and proceed with hypothesis formulation, which should be available for testing in real-life. This approach does not require existence of an Islamic economy as a prior condition for Islamic economics, a subject to which we turn below.

THE QUESTION OF ISLAMIC ECONOMIC SYSTEM Many Islamic economists believe that Islamic economics studies Islamic economic system. They, therefore, also plead for establishing such a system. Besides the fact that such an approach is merely an escape route to the lane of Islamic economic teachings (where you have only to reproduce essence of the divine texts on economic issues), it takes the economist away from drudgery of studying, understanding and analyzing real-life economic conditions and problems.

Mirakhor and Askari (2017, 180-182) say that faith (Iman) is the minimum and God-consciousness (taqwa) is the sufficient condition for an Islamic economic system. It can be easily seen that both are inner conditions of individuals and cannot be measured objectively. So far, we have not come across any study that defines measurable minimum and sufficient conditions of an Islamic economic system. Nor did we find a study that indicates the measurable transformation route, milestones and indicators for creating an Islamic economic system. Mirakhor and Askari (2017, 236-37) recommend that Muslims should comply with the rules of Islam and internalize its teachings. This would be the starting point for ushering in an Islamic economic system. Such 31

pieces of noble advice are not uncommon in Islamic theological literature and in writings of Muslim scholars involved in preaching. However, Mirakhor and Askari have not provided any theoretical framework for transforming the existing economies into Islamic economies.

Rehman and Askari (2010) have introduced ‘Islamicity indices’ for measuring adherence to Islam across countries. They have adopted 22 main indicators with detailed elements under each.

Using these indices, they collected data (mostly through proxy reports) from around the world to conclude about Islamicity of countries. This is a valuable breakthrough in measuring existence or absence of Islamic economic system. The indicators consist of four categories: (a) economic; (b) legal and governance; (c) human and political rights (d) international relations. However, these indicators are, except for absence of interest, about the same as we see in most of the developed countries. The results of measurement confirm this observation. For example, Northern European, New Zealand, Canada and Australia are the best performers on these indices and Muslim countries are the worst performers, except Malaysia and the Gulf Cooperation Council countries.

These indices have several shortcomings. For example, they do not consider adherence to Islamic rituals by individuals; do not refer to maqasid al-Shari’ah; do not mention zakah, waqf or qard hasan, and justice, etc. The authors themselves admit that this is yet a work in progress. They have published an improved version of these indices as well19. But the main questions remain unanswered: What are measurable indicators of an Islamic economic system? When do we say that Islamic economic system is in operation anywhere? Even the Islamicity indices referred to above exclude these conditions. In a more tangible language can we ask such questions: Suppose an economy establishes institution of zakah and passes law for prohibition of interest, shall we call it an Islamic economy? Or do we need to see more? If yes, what else is necessary? If not, why are we satisfied with these two actions only? The situation becomes more nebulous when we ask the question: how effectively has the system of zakah been implemented or interest abolished?

What shall be threshold of effectiveness below which the system would not be called Islamic? In brief, the more we explore this question greater ambiguity ensues.

The issue is further being confused by annual publication of a report by Thomson Reuters, titled as State of the Global Islamic Economy Report. The report gives an impression that it measures Islamicity of global economies whereas it only measures the state of business in such activities as halal food, Islamic finance, halal travel (travel for hajj and umra), modest fashion and halal cosmetics. The questions that we have raised about Rehman and Askari study in the above paragraphs apply more sharply to this report also. Not only this. Strictly speaking the term 19

See: Askari‚ Hossein and Hossein Mohammad Khan. Islamicity indices: The seed for change. New York: Palgrave Macmillan‚ 2015. Also: Askari, Hossein‚ Hossein Mohammad Khan and Liza Mydin. Reformation and development in the Muslim world: Islamicity indices as benchmark. New York: Palgrave Macmillan‚ 2017.http://islamicityindex.org/wp/.

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‘Islamic economy’ as used in this report is misleading. It uses Islamic economy to denote business in halal food, Islamic finance, travel for hajj and modest dress as Islamic. What about businesses in other food, other travel and other dresses? Do we declare these other businesses un-Islamic?

Even if we get on a supposedly hypothetical road of transforming an existing economic system into an Islamic economic system, we do not know when the feat has been accomplished. In absence of any such study or even thinking, we cannot accept the claim that Islamic economics is study of Islamic economic system, which does not exist and cannot be established in foreseeable future anywhere in the world. It would be study of a utopia.

SUMMING UP: DILEMMA 5 There is a lot of enthusiasm among Islamic economists for presenting Islamic economics as a normative science. However, some have tried to create a balance by combining the two: positive and normative dimensions. Others have evaded the issue by saying that Islam does not deal with this type of distinction. Some have tried to make Islamic economics a tool for creating an Islamic economy or establishing an Islamic economic system. Such ideas are instrumental in defeating the very purpose for which the movement for developing Islamic economics as a social science began. Social sciences have moved away from normative side of the business. Making a case for Islamic economic as a normative social science would not find many supporters in the global academic community. Islamic economics should, like conventional economics, be conceived as a positive science that studies the economic phenomena as it is. It should focus on such areas which are not focus of conventional economics. As argued previously in this paper, one such example is the impact and relationship of spiritual behavior on material conditions of human beings at micro and macro levels. For this purpose, Islamic economists do not have to integrate normative injunctions of Islam into their study. However, based on the theoretical work in this area, they can give policy advice for changing educational system or incentive system for employment, etc.

Same is true for the economy at macro level. Instead, of looking forward for creating an ideal Islamic economy, the Islamic economists should focus on economies as they are and study economic subjects emanating from the Qur’an and the hadith such as impact of the spiritual and ethical behavior of its people as an aggregate on an economy. That would open new areas of study. The wild-goose chase of creating an Islamic economic system should be discarded.

In this perspective, some Islamic economists have argued that we should not insist on the nomenclature of Islamic economics. We should focus on the content of subject, which is related to bringing in moral and ethical dimensions in economic analysis. By itself, there is nothing wrong in this idea. However, it would require deeper thinking by Islamic economists. It may mean that the work that has been done so far would have to be sidelined and a fresh beginning may have to be made. Despite some merit in the idea, I would suggest caution.

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Dilemma 6 Objective of Islamic economics: Who are the audience of Islamic economics? Muslims only or everyone?

Are Islamic economists trying to develop a social science which addresses Muslims only? Or do they intend to address the world body of scholars? If they are addressing Muslims only, are they not restricting the message of Islam? If they are addressing everyone, do they feel guilty of neglecting their responsibility for reforming the Muslim people? What is their actual objective?

If we ask an Islamic economist about his or her, the general reply would be that Islamic economics is meant for everyone. However, a perusal of the literature does not support this general response. We come across many writings on Islamic economics which purport to address Muslims only although there are exceptions which prefer to address everyone, Muslim or nonMuslim alike. The following discussion describes briefly arguments of both sides: RESPONSES: DILEMMA 6 First, Islamic economics is meant for Muslims only. For example, Hassan and Lewis (2014, 2) say that Islamic economics integrates ‘principles of Islam with economics… for molding economic analysis in a way that is appropriate to a Muslim’s economic behavior.’ Aydin (2015, 57) also thinks that the primary focus of Islamic economics is to create an Islamic economic system, which implies that he also is focused on a social science that deals with Muslims only. Zaman (2015, 59) defines Islamic economics as an effort to implement the orders of God pertaining to economic affairs in individual and collective lives of Muslims.

The most vociferous proponent of the above point of view is Zaman. An examination of his point of view, as representative of those who hold this view, is warranted at this place. Zaman’s definition effectively makes Islamic economics an internal affair of Muslims. Non-Muslims are totally banished from it. Does he want to restrict the guidance of the Qur’an and the hadith to Muslims only? Does he want to say that those who do not have faith in Islam should not benefit from its guidance? The Qur’an clearly says that it is a guidance for all mankind (Q. 7:158, 21:107, 39:41. 81:27). By restricting Islamic economics to Muslims only, Islamic economists are effectively contradicting message of the Qur’an itself. Zaman’s definition is more of an agenda of a religious reformist than a social science. It is more of an action plan for transforming individuals and society. It would not interest scholars who are normally more interested in studying something than getting up and implementing an action plan.

In his explanation Zaman says that remaining neutral observer and studying merely a phenomenon is against obligation of faith, which requires everyone to act if he or she sees something wrong. Mere studying a wrong (in this case injustice in human societies) and not doing anything is against the spirit of faith. By this clarification, Zaman is mixing up two things: (a) Studying a phenomenon (b) Struggling to change it. What is the problem if we have division of 34

labor? Some people study the phenomenon and others try to change it. How will it militate against spirit of the faith, when those who are merely studying it also have the same aim as those who are struggling to transform a society? Division of labor only adds to efficiency and effectiveness and does not militate against overall spirit of the faith.

Zaman argues that Islam is process-based and not results-based. It means Muslims need to struggle as required by the faith and not care much about results. Seeking results is a priority of this worldly life. But success in the hereafter is more important. This strand of reasoning has a degree of romance in it. If we can establish such a society, it would be good for everyone. But seeking good results in this world is also not against the teachings of Islam. Even the Qur’an uses this as argument for God’s Unity (Tawhid) when it persuades people to seek forgiveness and in turn God will shower them with His mercies. Or God uses the argument that philanthropy (infaq) would lead you to greater returns in this world also. These are examples of result-based persuasions found in the Qur’an itself.

Zaman has not clarified about action to be taken if we do not find a directly applicable order in the Qur’an or the hadith. In such situations, what will be contents of the implementation plan?

Can we term such an implementation plan as ‘Islamic’ in strict terms? It will contain human thinking which has no sanctity. Conventional economics also consists of human thinking. We are only saying that Islamic economics has action plans for implementing the will of God supplemented by human thinking on some economic matters. Will Zaman accept this understanding of his definition as valid?

Second, Islamic economics should not restrict its message to Muslims only. For example, Islahi (2015, 4) reports that the 7th International Conference on Islamic Economics held at Jeddah in 2008 (IERC 2008), declared that ‘Islamic economics be for each and all, declaring their problems to be its problems, taking up the causes of humanity as its causes.’ Jarhi (2013, 237) says that ambition of economists has been ‘to introduce to humanity a well-encompassing paradigm.’

Chapra (undated, 4) says: ‘Islamic economics relies on an integrated role of moral values, market mechanism, families, society, and ‘good governance to ensure the well-being of all’. Siddiqi (2011, 26-27) says that Islamic economists should involve others in the process of creating new knowledge because, firstly, the problems are complex and require global cooperation and secondly, the new knowledge is ‘created in the process of living by hundreds of millions of individuals, including some working for institutions, spread across the globe and its use is only partially amenable to regulation by the social authorities of different countries’.

SUMMING UP: DILEMMA 6 Islamic economics emerged as a response to Muslim aspirations for revival of Islamic teachings in lives of the people. Gradually, this struggle for revival evolved into call for developing Islamic 35

economics. However, some scholars could not off-load the original baggage of Islamic revival.

They are still laboring hard to create an academic discipline that addresses Muslims only and tries to reform their lives. The result is that Islamic economics is not known much outside the circles of Muslim activists. For example, Moisseron and Tuelon (2014) very aptly say that Islamic economic thought ‘is not really heard outside the circle of Islamic world, although Islam might have something to say to the World as a whole’. Efforts to address Muslims only is a myopic view and should be discarded by Islamic economists. They should present Islamic economics in a general manner which is understandable to ordinary academician, Muslim or non-Muslim.

Restricting Islamic economics to Muslims only has done a deeper damage to the cause of Islamic economics. Most of the writings on Islamic economics in English, for example, use language, and jargon which uses Arabic words and phrases recklessly, making the text pithy and ambiguous even for those Muslims who are not initiated in the subject, what to talk about non-Muslims. The writing style restricts readership and puts off those who are not already conversant with Islamic terminology. Islamic economics does need some terminology, as other social sciences have. For that purpose, Islamic economists should standardize the most commonly used terms. However, at present we see that most of the books and repots on Islamic economics and finance must append glossary to make the document comprehensible because Islamic economists prefer to use the Arabic words even at those places for which plain English language equivalents are available. The preference for creating a social science for Muslims only has led them to this sorry state. Gradually, the terminology of Islamic economics should be standardized. As far as possible, Islamic economists should use those terms which are understandable by ordinary readers without glossary or dictionary. That would help spread their message more widely.

Dilemma 7 Islamic intellectual heritage: Between original dynamism of Islam and preservation of the Islamic law (fiqh)?

The original Islamic approach to knowledge was dynamic: exploring, observing, experimenting and borrowing from other traditions, remaining within ambit of the Unity of God (tawhid).

Muslims faced new challenges for applying injunctions of the Qur’an and the hadith in lands they conquered. Generally, they showed a spirit of originality and flexibility in interpreting the primary texts. For example, Caliph Umar took an exceptional decision of retaining conquered lands of Iraq, Syria, Egypt and Iran with existing owners but levied a tax, known as kharaj, to be spent on the public. He had before him example of the Prophet (pbuh) who distributed four-fifth of the lands of Khyber among soldiers. However, he felt that distribution of the conquered lands among the soldiers would create a feudal class with immense economic power and deprive future generations. Many companions of the Prophet (pbuh) raised dissenting voice who considered it against the practice of the Prophet (pbuh) regarding Khyber lands. However, Caliph Umar 36

defended this innovative decision (ijtihad) based on his understanding of the Qur’an (Q. 59:10).

This spirit of original thinking was leading light for later generations of jurists who used innovative thinking in deciding about legality of everyday problems.

We have inherited a vast collection of the work done by various schools of jurisprudence in their respective times. It is a valuable treasure of knowledge. However, over long history it has acquired a hard crust that has shielded its original dynamism. Religious seminaries teach the received knowledge as a sacred heritage. They consider it improper, if not sacrosanct, to change contents of this heritage. Knowledge of the Islamic law (fiqh) has adopted a sort of inflexibility which sometimes creates mismatch with the prevailing social reality. There are several areas in Islamic economics and financial laws which require re-thinking (e.g. Khan 2016). However, Muslim religious elite is reluctant to re-open those ‘settled issues’ and prefer to stick verbatim to the received doctrine. The question is: how can Muslims revive the original dynamism which masters of the fiqh schools followed, without discarding what they have inherited? The dilemma is: how to persuade the religious elite for opening doors of innovative thinking which they erroneously believe to have been closed? Islamic economists have responded to the dilemma in several manners.

RESPONSES: DILEMMA 7 First, the fiqh is a treasure-house of knowledge and must be followed as it is (e.g., Kizilkaya 2015). Those who profess this view are unwilling to face challenges presented by the present age.

For example, they do not like to re-open the issue of the exemption limit of zakah (nisab) which according to the fiqh sources is equivalent of 200 dirhams of the days of the Prophet. In June 2017, the jurists in Pakistan declared the exemption limit for zakah in Pakistan as Rs 38,600. Now, this amount is so small that it can buy only a gold ring of 5 grams. Adopting this exemption limit means anyone who has more wealth than 5 grams of gold will be liable to pay zakah. The religious scholars who announced this decree are unwilling to listen to the question: If this is the exemption limit, almost everyone will be paying zakah, who would be entitled to receive it?

Issuing such decrees is possible only because the religious lobby is unwilling to undertake any innovative thinking on the so-called ‘settled’ issues. It is unfortunate that a sizeable number of Islamic economists also consider it the appropriate approach.

Second, some Islamic economists think that fiqh requires re-thinking. Despite being a valuable treasure of knowledge, it is a human product. With passage of time, some of it has become outdated. (Khan, M.F. 2015, 13; Siddiqi 2014, 67; Jarhi 2013). Islamic economists have mostly tried to incorporate contents of the fiqh as developed in early centuries of Islam without much re-thinking. For example, Kahf (2003, 8) laments that only zakah and waqf have received the attention of Islamic economists and that too without much innovative thinking. Siddiqi (2014, 62) deprecates application of rules relating to monopoly and profit-sharing without adjusting for the 37

present-day situation. He laments (Siddiqi 2004) that some Islamic economists treated guidance about a specific situation as guidance for all times. They did not consider appropriately its context. Some of them presented the rules of the fiqh without keeping an eye on objectives of the Shari’ah. It means rules of the fiqh were invoked and applied recklessly. Some scholars argue that Islamic economics and the fiqh are two independent sciences. The former studies human economic behavior considering available options, while the latter consists of legal codes and prescriptions (Tahir 2017, 8-11). Furqani (2015-a, 15-16) argues that Islamic economics is overly occupied by legal matters relating to mutual dealings (fiqh al-mua’malat). As a result, its scope and canvas are restricted to legal rulings only (Also: Haneef and Furqani 2009, 34).

However, even these scholars would not like to undertake, accept or encourage innovative thinking on ‘settled’ issues. They would like to do innovative thinking, if they are unable to find something in the fiqh resources. In most cases, however, they can find something. That reduces the area of innovative thinking significantly.

Third, some Islamic economists accept flexibility in a limited way. They like to restrict it to the extent of borrowing among other juristic schools. For example, if on a specific issue, the Hanafite view is considered rigid, and the Malikite or the Hanbalite view seems flexible, they would like to go for the flexible view and discard the rigid one. That takes them back to the first category of scholars who do not like innovative thinking on fiqh rules.

Various international fiqh organizations such as OIC Fiqh Academy, Indian Fiqh Academy, Accounting and Audit Organization for the Islamic Financial Institutions, Islamic Financial Services Board, International Islamic Shari’ah Research Academy for Islamic Finance, follow the practice of borrowing freely from all schools of fiqh. At the end of the day, they remain within the orbit of the classical fiqh and do not feel need for innovative thinking on broader and more basic issues, which are considered ‘settled’ but are inappropriate for the present age20. Iqbal (1989, 118) calls it ‘complete authority in legislation which is practically confined to the founders of the schools’ (ijtihad fil shara’) like Imam Abu Hanifa, Imam Malik, Imam Ahamd bin Hanbal and Imam al-Shafi’i in the same spirit of originality that was displayed by companions of the Prophet (pbuh) such as Caliph Umar.

Fourth, Zarqa (2003) points out that Islamic economics and the fiqh have multiple relationships.

According to him, Islamic economics and the fiqh have three-tier relationship: (a) Islamic economics tries to determine economic rationale of various Shari’ah rules. In this case, the fiqh helps Islamic economics. (b) Both Islamic economics and the fiqh recommend appropriate policies for public welfare. In this case, both are complimentary. (c) Islamic economics elaborates

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Khan (2016) has identified six such issues. However, many more such issues can be identified if an extensive research is undertaken.

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economic impact of various options. In this case, Islamic economics helps the fiqh in devising appropriate rules for public welfare.

THE ROLE OF SHARI’AH SCHOLARS IN THE PREESENT AGE Another pertinent issue that has come to limelight relates to the role of Shari’ah scholars in Islamic economics. Islamic bankers needed authenticity for their practice and the Shari’ah scholars found a great opportunity for financial gains in terms of attractive salaries and perquisites. It is a win-win situation both for the Islamic bankers and the Shari’ah scholars. Very quickly, the Shari’ah scholars posed themselves as Islamic economists, although most of them did not have formal education in economics (Saleem 2010). Nienhaus (2013) points out on authority of Unal (2011) that only 20 percent of the Shari’ah scholars had a formal education in economics. Similarly, Haneef (2015, 18) concludes about Malaysia that most of the educators involved in Islamic finance had the Shari’ah or legal background, not having exposure to modern fields of economics or finance. Some Islamic economists have strongly criticized the leading role of Shari’ah scholars in developing Islamic economics as a social science (e.g. Jarhi 2013, 239; Nienhaus 2013, 198Azhar 2010, 3).

SUMMING UP: DILEMMA 7 After the first six centuries of Islam, we see a clear decline in innovative thinking (ijtihad) among Muslims. The decisive blow was served by Mongol invasion of Baghdad in 1258 AD. It created an urgency for preserving from the intellectual resources whatever was not destroyed in the Mongol upheaval. As a result, innovative thinking was taken to back burners. Main concern was to safeguard teachings and writings of the past scholars. The original spirit of Islam that emphasized free borrowing of knowledge from whichever source it was available declined. Even the authentic Prophetic tradition, which says that the innovative thinker (mujtahid) would get two rewards if he is right but at least one reward if he is wrong, was forgotten21.

In 21st century, we have more resources and fast means of sharing knowledge than our forefathers. Besides, protocols of knowledge development have also changed. The West, which is leading the process of knowledge creation, has adopted a democratic process. Individual thinkers work in teams and publish their findings widely. These circumstances encourage Muslims to feel brave against possibility of making an error as it would soon come to light if discussed widely. Islamic economists should shed fear of being found wrong. They should show courage to speak their mind, raise questions and give answers freely. They should realize that new situations keep emerging that necessitate fresh thinking. Sticking to old solutions found in the fiqh books may not be the most appropriate way of handling new situations. Texts of the fiqh 21

‘Amr b. al-‘As reported that the Messenger of Allah (pbuh) said: If a judge makes a ruling by striving to apply his reasoning (ijtihad) and he is correct, he will have two rewards. And if a judge makes a ruling by striving to apply his reasoning and he is mistaken, he will have one reward. [ al-Bukhari]

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could provide guidelines but not precise answers in each case. Islamic economists need to beware of this caveat.

There is no denying the fact that Shari’ah scholars can provide valuable guidance about Islamic economic teachings. However, their training and background in Islamic law does not equip them for leading the effort to develop Islamic economics as social science.The task of developing Islamic economics should be led by economists and not Shari’ah scholars who have education and training in a different field. They are experts of law and are not trained in economics that studies behavior of the people in the market and develops theories which can be refuted or validated objectively.

Dilemma 8 Understanding the primary sources of Islam: Institutional arrangement or individual efforts?

There is no disagreement that Islamic economics studies the economic problem of man in Islamic perspective. That makes it imperative that the primary sources of Islam must be understood and interpreted clearly and consistently. The language, syntax and format of the Qur’an is such that its verses can be interpreted in various manners. This is evident from the number of available exegetical works. Since the Qur’anic guidance is for all humanity and for all times, its language is amenable to fresh interpretation in each age. As human society develops with the passage of time, earlier interpretations may require re-thinking. That keeps the original guidance relevant and applicable forever. Similarly, while accessing contents of the hadith, it is imperative that each narrative is examined considering its context, audience and timing.

For developing Islamic economics as a social science, various economic concepts and terms require clear and concise understanding. For example, when we come across an injunction in the Qur’an that Allah grants more to those who express gratitude, we need to define in a clear and measurable form the exact meaning of gratitude and the mechanism through which Allah grants more. Similar questions would become apparent when we come across other concepts such as israf, tabdhir, infaq, tawakkul, qanaa’ samaha, infaq, riba, zakah, fasad fil ard, adl, qist, sila rehmi, etc. For all Qur’anic concepts and terms, we would need clear and concise understanding that is also relevant to the present day social needs.

Ideally, understanding and interpreting the primary texts should be done by institutions where multi-disciplinary teams work on full-time basis. This work, despite being output of teams of scholars, should remain open for consideration and discussion by other scholars. However, at present, political situation of the globe is such that there is no likelihood that Muslim countries would be able to establish such institutions at global level. It is possible, however, that some countries or regions may take the initiative for establishing institutions that are exclusively

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devoted to the study of primary texts relating to economic issues. While doing so, they should undertake innovative thinking where necessary.

Another possibility is that Islamic educational institutions and research bodies undertake this work. They can encourage students of PhD and Master levels to select some areas for interpreting the primary texts considering the contemporary social reality. Results of their research can then be made available publicly.

A third option is that individual scholars keep busy in doing this work at their level and publish it for consideration and review by other scholars. However, credibility of such work will always remain an open to question.

SUMMING UP: DILEMMA 8 For transforming Islamic economic teachings into a social science, the first step is to compile and publish a generally accepted understanding of the primary texts relating to economic issues. This work requires full-time teams of scholars with multi-disciplinary background. There is no doubt that a lot of work is going on in the name of Islamic economics. However, most of it is restatement of the primary texts as received from the past. For adapting this understanding to needs of the present day, a continuous and exclusive effort must be launched at global level by establishing dedicated institutions. If that is not possible, then existing regional or country-level institutions engaged in research on Islam should undertake this work. In absence of any such mechanism, a third option is that some individual scholars attached to universities and research organizations take up this work on an exclusive basis. They should select the texts relating to economic issues in the Qur’an and the hadith and interpret them considering the present day social needs. The results of their effort should be published for further review and refinement.

Dilemma 9 Definition of riba and current practice of Islamic financial institutions: Review the definition of riba or tread on the trajectory of tricks and ruses (hiyal).

The Qur’an has forbidden dealings in riba (Q. 30:39, 3:130, 2:275-280). Historically, the Islamic law defined riba as an increment on a loan to be paid by a debtor besides the principal sum borrowed. However, with the advent of modern financial institutions during the last two centuries, the question of interest on bank finance came for discussion among Muslim scholars.

The overwhelming response by the scholars was that all forms of interest are riba and illegal under the Islamic law. That created a sort of abhorrence among Muslims in dealing with interestbased financial institutions. In the wake of independence from colonial powers and the flood of oil money in the last quarter of 20th century, many Islamic financial Institutions (IFIs) have come up. Since 1975, when the first Islamic commercial bank (Dubai Islamic Bank) was established, a lot of progress has been made by these institutions in terms of branch numbers, capital invested, 41

and assets managed22. Besides banks, Islamic insurance companies (Takaful companies, included in the generic term IFIs) have also been established. The dominant view remains that all types of interest is riba. This is the main justification for establishing these institutions.

Actual practice of the IFIs does not match the claim of being riba-free. For avoiding interest, the IFIs had the challenge of devising modes of finance which bring them guaranteed income but are not interest. In this search, the IFIs faced serious difficulties. They sought help of religious scholars for devising appropriate financial instruments. Most of the IFIs have adopted financing techniques which bring them fixed return, though not called interest.

In early days of Islamic banking, profit-loss sharing (PLS) or dual-mudaraba-based model was propagated for abolishing interest. However, soon the newly established Islamic banks found out that the PLS is not practicable. With the help of religious scholars, they commissioned other modes of finance based on mark-up (murabaha), leasing (ijara), (deferred delivery of goods (bai’ salam), deferred payment (bai’ mu’ajjal), manufacturing to order on deferred delivery basis (istisna’). These modes bring fixed rates of return to Islamic banks but are not considered as interest or riba. At present most of the Islamic financial institutions deal in these new modes of finance in preference to PLS. World Bank and Islamic Development Bank Group Report (2016, 69) says: More than 75 percent of the financing offered by Islamic banks globally is in the form of murābaḥah and deferred sales contracts. Leasing and hire purchase contracts come second, with about 11 percent. The shares of profit-sharing instruments (mushārakah and muḍārabah) remain at a lowly 4.17 percent and 1.67 percent, respectively. To put it another way, it appears that less than 6 percent of global Islamic financing is on a profitsharing basis. The benevolent qarḍ ḥasan contract stands at 1.53 percent. Overall, the “star” Islamic banking products represent less than 8 percent of the total of Islamic financing globally.

A strict adherence to these Islamic modes of finance creates various handicaps and presents challenges to IFIs. The practice of IFIs relating to the Islamic modes of finance (other than PLS) departs from the prescribed juristic conditions. However, for appearing to be riba-free they have devised many tricks and ruses (hiyal) which bring them fixed returns without getting the blame for earning interest. We have tried to catalogue these tricks in our earlier publication (Khan 2013, 337-401; also see Azhar 2010, 310). These tricks are so numerous that it is difficult to keep track, since new ones are being added almost daily.

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Siddique (2015, 4) says that reason behind fast expansion of Islamic financial institutions is that the prevalent model justifies ‘capitalism in the name of Islam’. The phenomenon has opened up ‘the gate for the subordination of Islamic world into the global capitalist order. It is this particular role of Islamic economics project that largely explains its global acceptance even in parts of the world which are, on the other hand, against political Islam’.

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The reason for devising the tricks is that in practice there are many situations where PLS or other modes of Islamic finance mentioned above are not practicable but the IFIs must deal with them.

Examples are: finance for public sector projects relating to education and health, financing for improving ability of business firms for service delivery, working capital needs for business, financing for very short periods of time such as a day or so, and financing for personal and social periods, etc.

Besides, for collecting savings of households, the IFIs need to compensate such sections of society which cannot afford any risk on their investments. Examples are pensioners, widows, housewives, small business savers, orphans with inherited wealth of their deceased parents, etc.

The IFIs do not have a risk-free mechanism for compensating people on investment of their savings which can be distinguished from interest. They have, therefore, adopted various techniques of giving fixed-income returns to such categories of people, although they do not term it as interest.

Similar problems are faced for devising a mechanism to punish deliberate defaulters of utility bills, credit card users, and members of voluntary organizations who default willfully on subscriptions. The organization that provide these facilities and services charge a penalty on default in payment by due date. This penalty is nothing but interest. However, Islamic finance does not have mechanism to replace this type of interest.

For people of integrity this is a sorry state. While many Islamic economists keep on protesting and persuading IFIs to return to PLS, the IFIs are doing their daily business in a manner that is practicable (e.g. Kahf 2003, 5-6). At the end, the whole exercise of Islamic banking has become less than enviable. Those who deal with IFIs try to pass on extra risks to them. The IFIs also try to earn sufficient profits to cover the extra risks. Consequently, in some cases, Islamic finance is more expensive than interest-based finance.

The Islamic scholars are unwilling to review their opinion on equivalence of riba and interest. But the IFIs are unable to provide financing or compensate for accumulated savings based on Islamic modes of finance as prescribed by the jurists. Islamic economists are standing at a cross-road, not knowing which way to follow: adopt the religious decree in letter or support the IFIs as commercially viable institutions? They are aware of the problems created by the dominant definition of riba. Some of their responses are as follows: RESPONSES: DILEMMA 9 First, there is a need for reviewing the definition of riba. We have documented arguments for reviewing the definition or riba elsewhere (Khan 2016). Shinsuke (2012, 132) quotes El-Gamal (2006, 175-189) that ‘if a certain financial product enhances economic efficiency, such a product should be approved as an Islamic financial product even if it includes interest’. Kahf (2003, 7) calls for a revision of theory of Islamic finance. Despite these lonely calls for revision in the definition 43

of riba and theory of Islamic finance, overwhelming majority of Islamic economists still adhere to the dominant definition of riba.

Second, more in-depth changes are needed in the mechanics of Islamic banking and finance.

For example, Jarhi (2013, 5-6) makes two suggestions as follows: First, finance must be redefined to indicate the provision of required commodities through deferred payment, deferred delivery, sale of services and usufruct, partnership or investment agency. Second, banking should be redefined to include investment and trading activities. These two steps represent a good part of the revolution of Islamic economics against the received doctrine…Shari ‘ah methodology must be adjusted to give precedence to maqasid…, [O]therwise, Islamic finance will continue to be open to sharp differences, depending on whether scholars stress maslaah, sadd aldharī‘ah, different dosages of each, or ultimate maqāsid.

Third, now that Islamic finance has matured, there is a need for doing away with flexibility of the early days in adopting various modes of finance. For example, Nienhaus (2013, 201-204) suggests that in the aftermath of global financial crisis of 2008, when need for unorthodox models of banking is being widely felt, the issue of basis of the Islamic banking can be revisited.

In early days of Islamic banking, the Shari’ah scholars relaxed various rules for sake of maslaha and compromised on PLS. However, time has come for reverting to PLS model. One of the changes could be separation of retail banking and investment banking, providing depositors options for placing funds not as deposits but as investments. The suggestion indicates that the present practice of Islamic banks requires re-thinking. However, going back to PLS turns an oblique eye to limitations of this type of banking. As pointed out earlier, PLS cannot cater for several types of financing needs.

THE PROBLEMS WITH DOMINANT DEFINTION OF RIBA The dominant definition of riba that equates it with interest has several inconsistencies. For example: a) The Qur’anic rationale for prohibition of riba is justice (Q. 2:279). However, the dominant view treats all interest as riba even though there is no injustice involved. For example, when a widow receives interest on her deposit from a bank, it is treated as riba, even though there is no injustice by any twist to the definition of justice. At the same time, it does not care if injustice takes place when a debt loses its real value in real terms due to inflation and the creditor receives a lower real value of money as compared to the time when the loan was extended. Obviously, it is a situation of injustice to the creditor. But the definition does not consider such situations. b) The Qur’an relates riba with the straightened circumstances of the debtor (Q.2:280).

However, the dominant view does not consider this factor. It treats all interest as riba, 44

c)

d)

e)

f)

even though there is no likelihood that the debtor would ever be in straightened circumstances. For example, when government of the USA sells bonds at interest, there is very little likelihood that the government will be in straightened circumstances when the time for payment of interest on bonds comes. However, the definition still considers interest on these bonds as riba.

The Qur’an mentions prohibition of riba in the context of charity (Q. 2:277, 30:39). It implies that riba relates to those people who deserve charity as an alternative to ribabased loans. But the definition does not specify this factor.

The Qur’anic reference (Q: 3:130) to doubling and re-doubling of the principal sum provides another justification for the prohibition of riba. The accumulation of interest could be due to inability of the debtor or willful avoidance to repay. The definition of riba should cover the former but not the latter. However, a blanket equation between interest and riba ignores this distinction.

The definition does not cover relationship of riba and trade – situations where capital is required for financing of trade and where it is required as debt. The Qur’an says that these are two different things (Q. 2: 275). However, the definition does not distinguish between the two. When the IFIs faced practical difficulties, the religious scholars made room for them by commissioning concepts of bai’ murabaha, bai’ mua’jjal, bai salam and bai’ istisna’. They immediately recalled that the definition should not apply to contracts of sale. Despite this accommodation, they did not review the definition of riba as such.

The definition does not cover situations where the debtor may earn large profits by investing borrowed funds and is willing to pay interest from out of profits. Interestingly, the definition also does not cover situations where the debtor suffers a loss. The idea of PLS is an add-on to the definition. The definition does not say that the lender should share the loss, if any.

SUMMING UP: DILEMMA 9

The predominant view among Muslims is that all forms of interest are riba. Rationale for establishing IFIs lies in this very perception. However, in practice, most transactions of the IFIs are like conventional financial institutions. Serious students of Islamic finance find that the practice of IFIs is widely divergent from the theory. There are some lonely voices which have called for reviewing the definition of riba which is the basis of Islamic finance. Majority of Islamic economists still go by the dominant definition and would accept the situation as it is.

The days when Islamic theory of riba was developed, majority of religious scholars and nationalist leaders in Muslim lands were against colonial powers and capitalist system. They saw commercial banks as institutions of exploitation in capitalism. The definition of riba was spelt before any reallife experience in Islamic finance. Actual practice brought out contradictions in the theory. It is time that Islamic economists take a pause and sit down to review the definition of riba. In the 45

meantime, advantage should be taken of the presence of IFIs. Instead of trying to find tricks and ruses to hide interest, IFIs should refocus on developing Muslim countries and promoting human well-beings. They should avoid short-comings of conventional financial institutions. The IFIs should make a difference in terms of greater efficiency, fairness, justice, and benevolence and not in being riba-free. This would require review of the definition of riba.

Dilemma 10 Alleviating poverty and providing social safety net: Going by the existing zakah law or undertaking ijtihad?

Despite tremendous progress in economic development during the last fifty years or so, poverty still exists widely and globally (Alderman, et el. 2018, xiii; Hunger Report 2017; Oshodi 2015; Clark 2014). Most of the Muslim countries (except for some in Southeast Asia and the Middle East), have high and increasing poverty levels of urban and rural poverty (Ali 2017, 12). FAO report (2017, iv) says that in 2016 the number of chronically undernourished people in the world was estimated to have increased to 815 million, up from 777 million in 2015. Mascarenhas (2014) says there are 1.2 billion people living at $ 1.25 a day, including advanced countries.

Islamic economists rightly feel confident that implementing the zakah law can help alleviate the global poverty generally and of Muslim countries specifically (Shaikh 2014, 17). Shirazi (2014) shows that potential collection and distribution of zakah can reduce absolute poverty in 23 out of 40 OIC member countries. Some Muslim countries such as Iran, Malaysia, Pakistan, Saudi Arabia, Sudan and Yemen have implemented the zakah law at government level. However, the collection of zakah proceeds is negligible. It has been in the range of 0.4 to 0.6 percent of GDP of respective countries (Shirazi 2018, 23; Kahf 1999). Nienhaus (2006, 176) says that both proponents and critics of the zakah law agree that the present collection in Muslim countries is insufficient for alleviating poverty. Shaikh (2014, 4) points out that one reason for low collection is trust deficit between the payers and the government functionaries, besides mismanagement and corruption in zakah organizations.

Some other countries, such as UAE, Kuwait, Saudi Arabia have autonomous and nongovernmental organization collecting and distributing the zakah. However, the impact in terms of alleviating poverty is insignificant. This is with reference to Muslim countries (Belouafi and Belabes 2016, 55). The taller claim of alleviating poverty around the world through zakah is still a far cry. The present law of zakah has several problems with respect to exemption limit, rates, distribution, investment and lending from zakah funds. At the same time poverty is presenting a serious challenge to governments and economists. In absence of a will to review the zakah law, it is not possible to fight poverty and provide a robust social security net for the poor through the zakah. The dominant view among religious scholars and Islamic economists is that the zakah law

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is divine and cannot be modified. How to reconcile these two situations? Islamic economists have been discussing and analyzing the situation and have come with several responses: RESPONSES: DILEMMA 10 First, the majority opinion is that the zakah law should not be modified. However, the government can undertake additional program of income and wealth redistribution. The holders of this opinion do not face the obvious question: why do we need the zakah law, if we must resort to secular programs of income and wealth distribution?

Second, there is a need for making the zakah law suitable to needs of the present age. The zakah can be an effective tool only if ijtihad is undertaken for revising the law (e.g., Azhar 2010, 233-34). Shaikh (2014) quotes examples of ijtihad of the first four caliphs in the zakah law. For example, the second caliph, Umar Farooq, levied zakah on horses and skins and exempted the rich during years of famine. The third caliph, ‘Uthman, levied zakah on yield of forests. Nienhaus (2006, 167-168) argues that rates and sources of zakah were specified by the Prophet (pbuh).

Thus, the zakah rules have a divine sanction but are human in origin. They were the best possible rules for achieving objectives of the zakah in days of the Prophet (pbuh). Making the zakah rules immutable would give them status of the Qur’an, which is of divine origin. Nienhaus says that there is no evidence that the Prophet (pbuh) himself considered this law as immutable. Practice of the companions who modified some zakah rules soon after his death also confirms this view.

Muhammad (2018, 40) quotes the example of juristic opinion relating to investment of zakah funds. He says that majority of the contemporary jurists such as Mustafa al-Zarqa, Yusuf alQaradawi, Abdul Fattah Abu Ghuddah, Abdul Aziz al-Khayyat, Hasan Abdullah Amin, Abdul Salam al-Abbadi, and Muhammad Farooq al-Nabhan, allow investment of zakah funds. In 1986, the International Islamic Fiqh Academy of the OIC and Shari’ah Committee of Kuwait Zakah House, and AAOIFI in Shari’ah Standard 35 also adopted the same opinion. However, some other jurists such as Wahbah al-Zuhayli, Muhammad Taqi Usmani, Muhammad ‘Ataa al-Sayyid and ‘Abdullah ‘Ulwan have disagreed with this opinion. Belouafi and Belabes (2016, 55-ff) caution about careless resorting to ijtihad. They plead that ijtihad should be undertaken when no clear injunction of the Shari’ah is available. Some Islamic economists (e.g., Kahf and Yafai 2015, 202; Tahir nd, (2015 ?) suggest that current systems of zakah should be reconsidered with respect to coverage of zakah items, bringing new sources and forms of wealth under its net. They also recommend zakah organization should adopt innovative methods, with a strong focus on permanent rehabilitation of the poor.

Third, zakah can be a robust basis for social security system (e.g. Siddiqi 2014, 67; 2013, 12; 2012, 9; 2008, 5; Farooq 2013, 29; 2009, 47-48; Kahf 2003, 8) They think that the social security system conceived in the wake of Bretton Woods arrangements has collapsed and the zakah can play a vital role in providing social security net for the poor. Nienhaus (2013, 195) suggests that 47

Islamic economists should demonstrate how institutions like zakah are not only viable alternatives to secular schemes and institutions but also have superior qualities even for not fully Islamized economies.

Fourth, there are some extreme opinions. For example, Tahir (nd, 2015?) thinks that zakah should be managed at individual levels. The government has no mandate from the Shari’ah for redistributing income and wealth. For alleviating poverty, the government can resort to other measures such as import tariffs on foreigners, business registration fees and deficit financing.

However, he does not reconcile his opinion with the explicit injunctions of the Qur’an for collecting (Q. 9:103) and distributing (Q. 9:60) zakah by the state. At least that is how the first caliph of Islam, Abu Bakr, and other companions of the Prophet (pbuh)at that time understood this law. When the first caliph took up arms against those who refused to pay zakah, the companions did not object to this action. Farooq (2012, 177) thinks that the primary purpose of zakah is spiritual purification and not alleviation of poverty. However, he does not present any explanation for the fact that out of the eight heads of account on which zakah can be spent (Q. 9:60), four relate to poverty.

PROBLEM OF POVERTY AND THE ZAKAH LAW Islamic economists present the institutions of zakah and waqf as distinguishing features of Islamic economy for alleviating poverty. There cannot be much dispute about this. However, the moot point is how do certain people become poor and how does poverty perpetuate in a society?

It requires studying the social reality in greater depth for understanding the mechanism through which people become and remain poor. There are natural as well as man-made causes of poverty.

Some of these are controllable by socio-economic actions, others not. The basic question is: what is the mechanism in an Islamic economy to trim back the inequalities? How to ensure that poverty does not take place or does not exceed beyond a certain limit even before the ameliorating mechanism of zakah and waqf or other means of philanthropy come into operation? That requires study of poverty before we suggest solutions for it in the form of zakah and waqf.

Poverty is a complex issue. It is outcome of numerous factors: historical, social, cultural, economic, financial, environmental and physical. Social scientists of various disciplines have been studying the subject. A wealth of literature exists, and a detailed discussion would not add much to the existing knowledge. The subject has been of interest to Islamic economists as well.

Generally, they have taken a romantic view of poverty. In an oversimplified sweep, Islamic economists have tried to argue that prohibiting interest and implementing zakah would adequately take care of the problem of poverty and not much more needs to be done. Without going into the merit of such an over-simplified approach, we would say that it is a romantic approach for solving a complex problem. None but Muslim audience can be persuaded by such simplistic treatment of the problem.

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Islamic economists need to recognize that the poverty and unequal distribution of income and wealth are inherent in a capitalist society. People are born with different faculties and resourceendowment. Some have higher ability and motivation for creating wealth than others. Some are born with disadvantages and handicaps and despite best efforts cannot compete in the open market of wealth-creation. On top of that man-made institutions, laws and mechanisms aggravate the impact of inborn inequalities. Poverty to some extent is natural in capitalist system and cannot vanish, come what may. Capitalist societies have been endeavoring to alleviate it.

The same has been the approach of Islam, which recognizes poverty as a natural phenomenon.

This is evident from its emphasis on zakah and optional philanthropy. To the extent that poverty to some extent is natural is common to both capitalism and Islam.

In capitalist societies, efforts are in progress at levels of government, multilateral financial institutions, philanthropic organizations, non-government organizations, and microfinance institutions, etc. However, success is yet quite limited. For example, ILO Report (2014, xix) says that only 27 per cent of the global population enjoys access to comprehensive social security.

Widespread lack of social security is closely linked to poverty and economic insecurity, and insufficient investment on human resource capabilities. The Report says (pp.4) that by 2102, majority of the countries had adopted some form of social security schemes, although the coverage was yet not effective due to enforcement problems, lack of necessary resources, and legal issues. The Report points (pp. 4) to ILO’s Social Protection Floors Recommendation 2012 (no.

202) which is the first international legal instrument that recognizes social protection as a universal human right, and an economic and social necessity. Islamic economists should consider ILO Social Protection Floors Recommendations seriously and examine the extent to which zakah meets the requirements of this limit. Such an examination may persuade Islamic economists for reviewing the zakah rules. For example, the question of exemption limit of zakah in the present age has been nagging the Islamic economists. They have not yet reached a consensus. However, on one point there seems to be a consensus: the objective of exemption limit in the zakah law is to exempt a certain minimum amount from tax that is necessary for meeting necessities of life.

The question has been: whose necessities are we talking about? Since there are different classes of people, each having a different standard of living, which class should be referred to when deciding about the exemption limit of zakah?

We think by adopting ILO Recommendation R 202 (2012) about Social Protection Floors (SPF), the path for determining the exemption limit for zakah seems visible now. The Recommendation comes as a sequel to the initiative taken by the United Nations Chief Executives Board for Coordination (UNCEB) which coined the concept of SPF.23 The Social Protection Floors - Initiative

(http://www.ilo.org/public/english/protection/spfag/download/background/unceb2009-gfcun.pdf)].

23

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Coalition (SPF-I Coalition), consisting of United Nations agencies, international NGOs, development banks, bilateral organization and other development partners24 now exists since 2009 to help countries establish and maintain their national social protection floors.

The Recommendation suggests that ILO member countries should provide guarantees as established by the Social Protection Floors considering its resources and endowments. It further says: “National laws and regulations should specify the range, qualifying conditions and levels of the benefits giving effect to these guarantees. Impartial, transparent, effective, simple, rapid, accessible and inexpensive complaint and appeal procedures should also be specified. Access to complaint and appeal procedures should be free of charge to the applicant. Systems should be in place that enhance compliance with national legal frameworks.�

A person who has income and wealth enough to avail of the Social Protection Floor would be defined as sahib al-nisab25 under the law of zakah. He or she would be liable to pay zakah. A person who is below the Floor would deserve receiving help from zakah. The Social Protection Floors should be defined every year. It may be an increasing figure as the country achieves higher levels of economic development.

SUMMING UP: DILEMMA 10 Since the current zakah proceeds are insufficient for alleviating poverty and since the Islamic scholars are not willing to modify the zakah law, the only option left is to redistribute income and wealth through secular legislation. If that is acceptable to Islamic economists then the obvious question is: many countries are already doing that through various economic policies, why do Islamic economists like to patch those policies with the zakah law? How to handle the situation?

Implementing the zakah law as it is would not cut much ice with the problem of poverty. By patching it with secular redistribution laws, need for the zakah becomes less obvious.

Most of the studies on zakah treat it as a form of worship (ritual). They plead for verbatim implementation of the law as found in early sources of Islam and consider any form of innovative thinking (ijtihad) in its rates and exemption limits as sacrilege. A second strand of argument is that zakah is the most appropriate mechanism for alleviating poverty but mismanagement and corruption or tax evasion by the rich are main obstacles [e.g. Ayuba 2016, 64-ff). A third strand is that most of the Muslim governments have not implemented the zakah law and it is mostly a private affair among the pious Muslims. A government action under appropriate legislation would have produced better results.

24

ILO, World Health Organization, FAO, International Monetary Fund, OHCHR, UN Regional Commissions, UNAIDS, UN-DESA, UNDP, UNESCO, FAO, UNFPA, UN-HABITAT, UNHCR, UNICEF, UNODC, UNRWA, World Food Program, WMO, World Bank, ADB, BMZ, DFID, Helpage International, Save the Children, ICSW, GIZ, ESN, Ministry of Foreign Affairs Finland, French International Health and Social Protection Agency, GIPS, and others.

25 Lit., one who is liable to pay zakah.

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Obaidullah (2017) analyzes zakah laws of 29 countries and concludes that most laws require attention for making them simple, coherent and compatible with social reality. Belouafi and Belabes (2016, 65) concede the point that there are areas in the zakah law where ijtihad is needed. However, they adhere to the orthodox position that ijtihad can be done only where a clear injunction of the Qur’an or the Sunnah is not available. They do not accept the position that there are areas in the zakah law which require ijtihad.

Broadly speaking, three approaches have emerged in implementing the social security systems across the globe: (a) Social safety nets (b) Microfinance (c) Philanthropy- outright charity Of these the third one is common to capitalism and Islam and does not need further elaboration in this paper. The other two are secular concepts. Various Muslim states have implemented some forms of social safety nets and microfinance institutions. The social safety nets have various shades and coverage in different societies. However, most of the social security programs face at least the following problems:  

Non-deserving persons line-up for social security benefits and there is no fool-proof mechanism for controlling the leakage of benefits.

Some deserving persons remain uncovered because they feel hesitant to line up for the benefits. It remains a difficult question about how to identify such poor people.

A serious effort in addressing the problem of poverty in Muslim countries as well as around the globe would require not only data on ground conditions but also showing how the zakah law can alleviate poverty effectively. Fortunately, data on ground studies at macro and global level poverty exist now to some extent. The challenge for Islamic economists is to show how zakah can meet the challenge of alleviating poverty.

Dilemma 11 The Invisible Hand of God: Understanding its operation in economic lives of the people or focusing on physical and material factors only?

We come across several references in the Qur’an about divine distribution of income and wealth (rizq) through ethical laws of God. For example: righteous deeds show way to a happy life; gratitude leads to material prosperity; God repays philanthropy by increase in income and wealth, etc. The Qur’an narrates in detail anecdote of Prophet Moses’s encounter with a sage (Q. 18:60-82) who shows with three examples how the Will of God operates in an invisible 51

manner. With reference to economic lives of people, we do not know yet how does a certain pattern of behavior lead to certain effects. The Invisible Hand of God operates through certain immutable laws. However, we do not know these laws yet. We need to discover the cause-effect framework for these laws, taking a lead from verses of the Qur’an which refer to the impact of ethical and spiritual behavior on material life of individuals, firms, communities or economies.

This is a challenge for whole of humanity, not for Muslims only. Muslims should make a beginning and draw attention of the world academic community to contents of the divine texts which relate ethical and unethical behavior of people with material conditions. By following the generally accepted scientific approach of formulating hypotheses and testing them in real-life we can hope to discover operation of the Invisible Hand of God in cause-effect framework.

A commonplace approach among Islamic economists is to turn an oblique eye to such verses of the Qur’an on the pretext that they pertain to hereafter. However, if we discard this evasive approach and recognize relevance of such verses with the present life as well we have a challenge of discovering cause-effect framework for operation of the Invisible Hand of God. All physical sciences have developed by efforts of scientists for exploring the cause-effect relationship of various natural phenomena. By adopting a rigorous process of thinking and empirical testing, they discovered innumerable truths operating in the universe. Accumulation of the entire stock of knowledge in physical sciences owes its existence to this approach. Similar ethical and spiritual laws are operating in our material and financial lives. These laws are immutable. It would require extensive empirical work beside in-depth thinking on texts of the Qur’an and the hadith. As direct audience of the divine texts, Muslims have primary responsibility for finding relevance and meaning of these laws of God for life in this world. They need to make a beginning by presenting these laws to humanity at large and drawing attention of the academic community for further research and thinking on the subject.

SUMMING UP: DILEMMA 11 Strictly speaking, at present, it cannot be treated as a dilemma of Islamic economists. The present writer came across only a few scattered references in the literature to moral laws dealing with economic lives of the people. Almost the entire literature on Islamic economics deals with physical and material factors relating to production, distribution and consumption of income and wealth. Some exceptions are as follows: Mirakhor and Askari (2017, 60-67) have dealt with the subject quite at length. They have argued that the invisible hand in writings of Adam Smith refers to the Invisible Hand of God. They argue that Smith’s concept is almost the same as that of Islam with reference to role of ethical and spiritual principles in economic life of the people. Siddiqi (2014, 70) suggests that Islamic economists should adopt creative thinking to operationalize moral values and innovative thinking for serving the common good. Nienhaus (2014, 579) also mentions about God’s intervention in 52

the economic affairs of people. Mahomedy (2016-a, 23) points out that ‘the human condition within the broader environment is in large part a consequence to the choices and deeds that people execute’. He suggests that the verses of the Qur’an that deal with these principles should be part of Islamic economics.

Except for the above solitary examples, Islamic economics, in general, have adopted the same framework for its study as conventional economics does. There is no doubt that the Islamic economists, in their personal belief set, hold a very high place for operation of the Will of God. However, when it comes to the study of economic issues, they hardly ever refer to the Invisible Hand of God, although the Qur’an and the hadith literature has several such references which point to intervention of God in economic affairs of individuals, firms, communities and nations.

Islamic economics can break new ground if it diverts its attention to operation of the Invisible Hand of God. It would add a new dimension to the knowledge of economics: relationship and impact of the spiritual and moral behavior on material condition of individuals and communities.

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Summary of Main Conclusions During the last four decades or so, Islamic economists have done a lot of useful work for developing Islamic economics as a social science. However, the mission, by and large is yet unaccomplished (Siddiqi 2013, 14; Kahf 2003, 10). The paper analyzes reasons for the present state of Islamic economics. It identifies eleven dilemmas of Islamic economists which have contributed to slow development of the subject. In the following summary, we shall present the dilemmas along with our suggested course for the future.

1. The global academic community is generally averse to a religion-based social science.

How to make Islamic economics palatable to the academic community? Islamic economics should present its contents on rational grounds and not on authority of religion.

2. Should Islamic economists build their case on gaps in conventional economics or on strengths of their subject? Obviously, the answer should be the latter option. However, not all Islamic economists think so. Conventional economics has two sources of knowledge: human intellect (reason) and empirical data. Islamic economics has an additional source: revelation. By adding this source, the canvas of knowledge expands. It becomes possible to understand the social reality in a more comprehensive manner. That should be basis for advocating Islamic economics as a social science.

3. What is the relationship of Islamic economics with conventional economics? Should Islamic economics adopt, adapt or discard conventional economics? Conventional economics should be studied as it is. Islamic economics should study the subjects which are not within the domain of conventional economics.

4. What is Islamic economics? There is a jungle of definitions. The present paper attempts to lay down criteria for an appropriate definition and then defines it as follows: Islamic economics is a social science that integrates human understanding of divine sources of knowledge into the study of economic problem.

5. What is the methodology of Islamic economics? Is it positive or normative or both? Like conventional economics, Islamic economics should be a positive social science. Its normative content can be used in policy making.

6. Who are audience of Islamic economics? Islamic economics should be developed as a social science for all people and not for Muslims only.

7. How to make use of the Islamic intellectual heritage (Islamic fiqh) in Islamic economics?

Islamic fiqh is a treasure of knowledge. However, it has a hard crust of stagnated thinking dating back to few centuries. Islamic religious elite is averse to any innovative change in that heritage. But it does not have appropriate answers to contemporary economic 54

issues, either. Since basis of fiqh is human thinking, it should be reviewed considering contemporary social conditions.

8. Need for institutional arrangement for developing appropriate understanding of the primary sources of Islam is generally accepted. The global situation of Muslims is such that in foreseeable future appropriate institutions for developing understanding of economics-related texts does not seem feasible. In absence of such institutions, burden of understanding the divine texts lies on individual scholars.

9. Dominant view at present is that all types of interest is riba, which is prohibited in the Qur’an. The contemporary Islamic financial institutions were unable to implement this definition in practice. They have devised hosts of tricks and ruses and brought interest into their operations. The IFIs should continue functioning but a review of the definition of riba may help overcome constraints imposed by the extant definition.

10. Pride of Islamic economics is the zakah law which aims at alleviating poverty. Islamic economists and religious scholars should join hands for reviewing the law and making it relevant for contemporary social reality.

11. The Qur’an and the hadith have several statements which refer to operation of the Invisible Hand of God. Islamic economics should undertake extensive research on operation of the Invisible hand of God. Islamic economics should basically focus on creation of new knowledge based on the Qur’an and the hadith. However, Islamic economists can freely use other knowledge as well. While doing so, they can adapt it, considering their objectives. In this manner, Islamic economists would contribute to the world knowledge but also avail themselves of the existing knowledge of social sciences. The present confusion about positive or normative or about paradigm shift etc. can be shed by this approach.

There is need for encouraging critical and innovative thinking among researchers and scholars.

They should feel free to question all knowledge produced by human beings and be prepared to re-write it, if required. The environment in universities and research centers should welcome dissent and disagreement and encourage dialogue. Students should be taught tolerance and democratic ways of thinking and interaction. They should understand that the knowledge produced by human beings remains subject of discussion. They should be prepared to review it considering empirical evidence and ground reality.

[THIS IS FROM ME AND ALLAH KNOWS THE BEST]

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